African countries such as Ethiopia, Ghana, Senegal and Côte d’Ivoire already top world charts for economic growth. The continent’s biggest economies such as South Africa and Nigeria may underperform in the short term, but global businesses and investors are excited over a prospect of decades of strong growth.
Prizes in the 21st century scramble for Africa include commodities and natural resources, as in the 19th century version, and the chance for businesses to stake their claims in the “last frontier” for long-term breakout growth.
World powers are making friends and building influence across the continent through business and infrastructure ties, some funded by concessional loans. They are racing to build and finance ports, railways, power, telecommunications (and associated intelligence potential) and foreign military presence is growing.
Akinwumi Adesina, president of the African Development Bank (AfDB), told a November 2018 African Investment Forum: “Africa has an investment opportunity of $68-108bn a year for infrastructure alone.”
Vera Songwe, executive secretary of the United Nations Economic Commission for Africa, based in Ethiopia, says this scramble is different from the first and Africa benefits from the increased competition: “I would like to think that we on the continent know what we want and how we want it. ‘Scramble’ sounds like the Wild West, but I don’t believe the continent is in the Wild West phase any more. We have moved towards clarity of purpose and objectives.”
The West – especially the UK, France and Portugal – had huge holdings in Africa after the first ‘Scramble for Africa’ (1881-1914). The US caught up during the Cold War (1947-1991) and eventually eclipsed Russian influence. Since then the West seemed to lose focus and long-term engagement fizzled after the global financial crisis. China, India, Russia, Turkey and Brazil and other rising powers have been happy to fill any gaps and Japan is relaunching its charm offensive.
Now, the West is pouring a range of monies into the continent, opening the doors to international infrastructure opportunities.
On 5 October President Donald Trump signed into law the Better Utilization of Investments Leading to Development (BUILD) Act, launching a $60bn International Development Finance Corporation (IDFC) with streamlined investment capacity to replace the Overseas Private Investment Corporation (OPIC) and which combines other US investment initiatives.
Commentator Aubrey Hruby wrote: “The proposed IDFC will be OPIC on steroids. It will enhance global competitiveness relative to US trading partners, it will support US firms seeking opportunities in frontier markets and it will eliminate institutional inefficiencies.”
IDFC investment support includes technical assistance grants, finance for feasibility studies, development credits, first-loss guarantees, debt financing including in local currency, and political risk insurance. IDFC can invest equity (up to 20%), helping mitigate risk and act as a catalyst.
Support for Africa and fear of China boosted bipartisan backing for the bill. In August, US senators wrote to Treasury Secretary Steven Mnuchin and Secretary of State Mike Pompeo, accusing Beijing of “weaponising capital” in Africa and using debt to create an economic world order in China’s image.
The USA has been boosting African investments for some years. OPIC reports that 27% of its portfolio is invested in sub-Saharan Africa, including $6.28bn into 136 projects. For example, in 2017, OPIC helped Bechtel win a contract to build the $3bn Nairobi-Mombasa expressway in Kenya. Connect Africa, another OPIC initiative, aims to invest $1bn into telecommunications infrastructure over the coming three years.
Meanwhile, the Millennium Challenge Corporation invested more than $6.5bn (2005-17), through grants leading to open-tender bids in 14 countries.
Former President Barack Obama announced Power Africa in Tanzania in July 2013. It is coordinated by USAID and aims to double access to electricity in sub-Saharan Africa by 2030, working with more than 160 public and private sector partners and 18 development partners, including the AfDB, which pledged $3bn. In November 2018, Power Africa signed a memorandum of understanding with the Eastern and Southern African Trade and Development Bank to finance projects in 22 countries.
Power Africa leverages investments with a focus on transactions and bridging gaps in financing and risk. It has mobilised more than $14.5bn into projects, with US private sector backing a third of them, and helped bring 9,500MW and 12.5m connections (homes and businesses) to financial close.
Before IDFC, political momentum had been slowing. The Brookings Institution says two-way trade with the US fell from $100bn in 2008 to $39bn in 2017, mostly due to lower oil imports.
Nonetheless, the US remains the biggest investor in Africa, with $54bn of foreign direct investment (FDI) stock. Some 600 US companies operate in South Africa alone.
Several European leaders spent happy days last summer touring Africa, both advancing bilateral trade and investment and supporting European Union initiatives.
On 12 September, European Commission President Jean-Claude Juncker proposed “a new alliance for sustainable investment and jobs between Europe and Africa...[which] would help create up to 10 million jobs in Africa in the next five years alone.”
Neven Mimica, Commissioner for International Cooperation and Development, said it “is about unlocking private investment and exploring the huge opportunities that can produce benefits for African and European economies alike. It is about stepping up our partnership and putting our weight behind African initiatives”.
EU financial contributions to Africa in 2014-20 total €42bn, including €32.5bn in dedicated funds (grants), and in 2021-27 EU grants will rise to €40bn. The EU External Investment Plan features another €44bn in expected investments over 2017-20, including €4.1bn in grants for blending and guarantees to leverage capital markets resources from international, European and national financial institutions.
European relations with Africa focus around economic partnership agreements (EPAs), although several countries including Nigeria claim these undermine national industrialisation strategies.
British Prime Minister Theresa May spent three days in August in Kenya, Nigeria and South Africa, with widely reported dance moves. In Cape Town she announced “an additional £4bn programme of UK investment in African economies that will pave the way for at least another £4bn of private sector financing”. This includes an ambition from the UK government’s development finance institution, CDC, to “invest £3.5bn in African nations over the next four years”.
The UK is the second biggest investor in Africa, measured by investment stock, largely mining. A 2016 report found 101 London Stock Exchange-listed companies with mining operations in Africa, controlling resources worth over $1trn.
The Department for International Development (DFID) has an African budget of £161.9m for 2018/19, set to rise to £199m next year. State-owned private equity investor CDC, celebrating its 70th birthday, says its £5.3bn worldwide portfolio includes 715 African businesses.
GERMANY AND THE G20
Also in August, German Chancellor Angela Merkel toured Ghana, Senegal and Nigeria. Commentator Afua Hirsch thinks Germany is ahead compared to the UK’s focus on exports for UK companies: “Germany…is investing in more of the kind of industry African countries actually want. While May was honing her dance moves, Angela Merkel was offering manufacturing plants.” This included plans with Ghana to establish a Volkswagen assembly plant, adding to facilities in South Africa, Kenya, Rwanda and Nigeria.
Germany has launched three Africa initiatives in two years. In 2016 Development Minister Gerd Müller flagged up a ‘Marshall Plan’ with Africa. “We need a paradigm shift; we have to realise that Africa is not the continent of cheap commodities but that the people of Africa need infrastructure and a future,” he said.
In June 2017, Finance Minister Wolfgang Schäuble announced the G20 Compact with Africa to boost skills and improve the investment environment, initially joined by Côte d’Ivoire, Morocco, Rwanda, Senegal, and Tunisia and later by Benin, Egypt, Ethiopia, Ghana, Guinea and Togo. Germany hosted African heads of state at the G20 conference in Berlin and pledged to promote growth, fight poverty and create jobs for the growing youth population.
Mark Moseley, chief operating officer of the G20’s Global Infrastructure Hub, says the focus should be wider than development finance: “Improving the overarching policy environment…should be a primary objective for Africa as a region. An effective policy environment allows for efficient and disciplined planning, which is crucial if infrastructure projects are to be sustainable, contribute to growth, and lift people out of poverty.”
France has done more than Britain to maintain ties with its ex-colonies, including backing CFA franc currencies in both Western and Central Africa. It has also not fought shy of high-profile military “boots on the ground” in the Sahel, including 4,000 soldiers in Mali in 2013 to subdue an insurgency, and helping form the G5 Sahel force from five francophone countries. The Organisation internationale de la Francophonie says that 80% of the 700 million French speakers by 2050 will be Africans.
French President Emmanuel Macron sees Africa as a cornerstone in building France’s global influence. In August 2017 he set up a Presidential Council for Africa and told African ambassadors: “The future of the world will largely be played out in Africa.” Macron has already made several visits to African countries.
New funding initiatives in 2018 include €200m for a Global Partnership for Education and €65m for a fund operated by the Agence Française de Développement (AFD) to fund digital start-ups in Africa, with sums of between €30-50,000.
AFD says it works in 44 African countries and committed €3.9bn in 2016, half of its total activity.