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· What should be the first step a German company should take when considering to enter the African markets
1. Define the goals and aspirations in Africa. Discern which countries, product categories and customer segments to focus on. Understanding the market size and structure before you enter the market is absolutely critical to develop an appropriate approach. Let the size of your market guide the options for entry and the amount of resources you are willing to commit to that market.
2. Take a longer-term view. Given the operational challenges of Africa, gaining access to opportunities typically takes longer than expected. Take this into account when calculating return on investment into your market entry model.
3. Identify reliable business partners in Africa. The wrong partner selection can cost you money and waste of time.
· Are local partnerships the only option for German companies to enter Africa
Political and state support is nevertheless still necessary; as medium-sized German industries are much more risk sensitive than other competitors. The state can use Hermes cover to protect companies from default risk in connection with exports, but this cover is still not available (or only under difficult conditions) for business with the public sector and long-term projects in many African countries. German companies need support above all in the early project phases through new forms of public-private risk sharing. We suggest a form of project development insurance: when a businessperson is successful, they pay part of their profits into a pot. This pot can provide partial relief to other companies if their projects in Africa fail. In this way, even traditionally cautious medium-sized companies can proceed with the first phase of developing planned investments. As private capital is impossible to raise for such high-risk phases, a state-financed initial spark is needed: developments funds for promising projects, such as the construction of solar and wind parks.
· What are the main barriers for entering the African markets?
The main problem is the perception of Africa in Germany. German companies in search of growing markets look first to Asia. The message that many African markets now have similar or even more promising growth stories to offer has not yet fully spread. Many small and medium sized enterprises are likely to consider activity in Africa to be too risky, not least because the continent is often still associated with a lack of political stability. Poor infrastructure is also sometimes seen as a further deterrent – even though its improvement and expansion offer fascinating opportunities for German industry. Of course, there are also political constraints. Development cooperation from Germany and the EU, for example, should focus more effectively on supporting local businesses and promoting the activities of international companies in Africa.
· What are the major benefits for trading in Africa?
German companies present their special strengths in the areas of mechanical engineering, the chemical industry and plant construction. We have also placed strong emphasis on the ICT sector – an area experiencing rapid growth in Africa. Whether expanding broadband access or developing solutions in the fields of e-government or electronic payment methods – technology “made in Germany” can contribute greatly to this growth. The same is true for the energy sector. Africa is perfectly suited for photovoltaic and geothermal energy – fields in which German companies have set the standards. However, grid components and conventional energy generation will also remain a focus for the time to come. The agribusiness sector, the chemical and pharmaceutical industries, as well as medical technology complete the list of fields where the most promising opportunities can be found for German business.
German companies currently hold investments in Africa totaling 10 billion euros. In addition, over 800 German companies employ 200,000 people locally in Africa and generate annual revenues of 31.6 billion euros. In the last five years alone, German-African export trade has increased by 35% to 42.8 billion euros. Transport goods, machinery and chemical products make up the largest share of goods exported from Germany to Africa. German imports from Africa consist mainly of African raw materials and energy products: together these account for more than 75% of all imports from Africa. Other African sectors that feature significantly in German imports include manufacturing, tourism and agriculture. Among the 54 countries on the continent, Germany’s most important foreign trade partners are South Africa, Egypt, Algeria, Morocco, Tunisia and Nigeria. Admittedly, Africa currently accounts for only 2% of Germany’s overall foreign trade volume and, as such, is a comparatively small trading partner – despite the gains. This, however, could soon change.
· Are there business networks that German companies should join when entering the market?
The German-African Business Association (Afrika-Verein der deutschen Wirtschaft) is the one and only foreign trade association representing German companies and institutions with an interest in Africa. Through its well-established networks, the Association promotes exchange between German and African representatives from both business and politics. In doing so, the Association advocates a new conception of Africa in Germany: Africa as a continent of opportunities.
The Association provides information about countries and markets and represents the interests of more than 600 members nationally and internationally with respect to political, economic and media issues. The Association positions itself as a competent contact point and contributes actively through political dialogue to setting the stage for the successful involvement of German businesses in Africa.
Over the past ten years, Africa’s importance for Germany as a foreign trade partner has significantly increased. German companies have become aware of the fact that a large share of the world’s fastest-growing economies can be found in Africa. However, there is still room to expand their activities on the continent.
German companies should take full advantage of the opportunities presented by African markets. German businesses are internationally recognized for their high standards of quality, education, environmental protection and social sustainability. African countries appreciate this. We have to, and shall, live up to this trust. We strongly believe in the mutual benefit provided by the cooperation between our African partners and German companies.
The German–African Business Association (Afrika-Verein der deutschen Wirtschaft) is the foreign trade association representing German companies and institutions with an interest in Africa. Through its well-established networks, the Association promotes exchange between German and African representatives from both business and politics. In doing so, the Association advocates a new conception of Africa in Germany: Africa as a continent of opportunity.
The Association provides information about countries and markets and represents the interests of its more than 600 members nationally and internationally with respect to political, economic and media issues. The Association positions itself as a competent contact point and contributes actively through political dialogue to setting the stage for the successful involvement of German business in Africa.