Africa harbours great potential: abundant resources, cultural diversity, entrepreneurial spirit and capacity for innovation. About half of the 20 fastest growing economies can be found in Africa. The continent will have the largest labour supply in the world by 2035. Harnessing the potential of this rapidly growing population - by 2050 it will double to 2.5 billion people - poses an enormous challenge. Every fourth person on earth will be African by 2050. The global markets, employees and customers of the future are emerging here.
Africa has been a focus for several years. This is also due to the issue of refugees, the possibility, perceived by many as a threat, that millions of Africans will leave for Europe in the coming years. What are the reasons that young people in particular want to leave Africa? They do not see any opportunities in their home countries to build a dignified life in economically and politically stable conditions, with educational possibilities, a job and a chance to provide for their families. And in many countries persecution, discrimination, ethnic conflict and human rights violations are on the rise.
The German Federal Government is committed in a variety of ways to supporting the neighbouring continent of Africa as it takes on responsibility for its own security and development. The Federal Ministry for Economic Cooperation and Development (BMZ) is giving the Compact-with-Africa initiative agreed during the German G20 Presidency in 2017 a concrete form with substantial commitments at bilateral level in a “Marshall Plan with Africa” and reform partnerships.
Up to now BMZ concluded reform partnerships with Côte d'Ivoire, Ghana, Tunisia, Ethiopia, Senegal and Morocco. In return for the funding commitments, the countries have committed to ambitious reform agendas aimed at improving the investment climate for both African and European companies. Central to cooperation: close political dialogue and mutual partnership commitments. African reform efforts are flanked by targeted support.
The reform partnership in Tunisia concentrates on the financial and banking sector with a current promotion volume of around EUR 490 million. Funding of EUR 201 million is available in Ghana and EUR 95 million in Côte d'Ivoire for private-sector driven expansion of renewable energy sources (solar, wind), grid expansion and energy efficiency. This is because surveys of African entrepreneurs repeatedly cite the lack of a reliable electricity supply and cheaper loans as crucial shortcomings. Virtually no African country has a stable electricity supply – two thirds of the people have no access to electricity.
As part of the BMZ's “Special Initiative for Training and Employment”, KfW Development Bank established the FC facility “Investments for Employment” in the form of a German GmbH (limited liability company). In 2019, at least EUR 80 million will be contributed, possibly as much as EUR 400 million. In the six reform partnership countries as well as Egypt and Rwanda, investments will be financed that will enable German, European and African companies to create more jobs and training opportunities.
The Development Investment Fund for Africa was launched in autumn 2019. Initially, loans of EUR 400 million will be available for companies that want to invest in Africa. In the coming years, the fund is even expected to grow to EUR 1 billion. The Compact with Africa focuses particularly on investments in the twelve countries: Egypt, Ethiopia, Benin, Burkina Faso, Côte d'Ivoire, Ghana, Guinea, Morocco, Rwanda, Senegal, Togo and Tunisia.
Given the ambitious development goals, the aim is for the private sector to make a much greater contribution to development in the African partner countries. The international community therefore supports particularly reform-oriented partner countries in improving their macroeconomic, business and financial conditions for private investment and employment. Another aim is to directly mobilise and stimulate the private sector, in particular through the financial sector. KfW Group is involved in two of the three components of the development investment fund: AfricaConnect and AfricaGrow.
The AfricaGrow fund of funds is intended to promote African SMEs and start-ups, primarily in the Compact-with-Africa countries. The Federal Ministry for Economic Cooperation and Development will provide EUR 100 million for this project in 2019; the Deutsche Investitions- und Entwicklungsgesellschaft (DEG) and institutional investors will contribute their own funds. The target group is small and medium-sized enterprises (SMEs) and start-ups. The AfricaGrow fund seeks to stimulate the new and dynamic African SME and start-up landscape, thereby promoting jobs and income. The financing gap for small and medium-sized enterprises on the continent is estimated to be EUR 330 billion – funds from the private sector are therefore urgently needed.
AfricaConnect supports European SMEs in their investments in Africa with attractive terms and conditions. AfricaConnect offers much more than just financing: DEG's special form of risk sharing and its experience and network make it easier for entrepreneurs to decide to invest in the African continent. With AfricaConnect funding, DEG can make a substantial contribution to financing planned entrepreneurial investments with long-term loans. The amount of the loan – in euros or US dollars – can range between EUR 750,000 and EUR 4 million.
Twenty investment projects are already currently being pursued. Enquiries cover all 12 CwA countries -– enquiries in these countries are prioritised. Countries that have received a high number of enquiries to date are Ghana*, South Africa, Kenya, Nigeria, Ivory Coast* (*= CwA country).
Chronic instability, rising extremism, a lack of economic prospects, and poor access to education, employment and essential services such as water and electricity - these are the many challenges facing the Sahel countries, Mauritania, Mali, Niger, Burkina Faso and Chad - the G5 Sahel countries. Climate change is also weakening the region. This unstable and fragile situation necessitates an appropriate and rapid response on the ground.
Development partners and international organisations provided the response to this double-edged challenge of security and sustainable development. In July 2017, France, Germany and the European Union announced the creation of the Sahel Alliance. The World Bank, the African Development Bank and the United Nations Development Programme quickly joined them, followed by Italy, Spain, the United Kingdom, Luxembourg, Denmark and the Netherlands.
To respond appropriately to the challenges, the members of the Sahel Alliance have adopted four guiding principles: targeting its fields of action according to priority sectors; accountability between partners with regard to shared goals; new, innovative and more flexible modes of action; and a specific commitment to vulnerable and fragile zones.
Priority sectors are: “education and youth employment”, “agriculture, rural development, food security”, “energy and climate”, “governance”, “decentralisation and basic services” and “internal security”. The relationships between partners and G5 Sahel States are founded on an approach of mutual accountability, meaning that the goals to be achieved are defined, measured and shared by all partners. To accelerate both their implementation and their effectiveness, the projects will adopt new modes of action, through innovative and more flexible financing methods and a diversification of the stakeholders implementing them (NGOs, local authorities, and the private sector). Fragile zones will be subject to particular attention.
In January 2019, the Sahel Alliance supported more than 730 projects with a total amount of EUR 11 billion. Of these, 49 projects are being financed by KfW with a volume of EUR 617 million.
On the occasion of the Berlin Energy Transition Dialogue (BETD), the Federal Ministry for Economic Development and Cooperation (BMZ) is launching the study “The Renewable Energy Transition in Africa – Powering Access, Resilience and Prosperity” on 16 March 2021. The analysis developed by KfW in cooperation with GIZ and IRENA shows that half of the population on the African continent still has no access to electricity which is one of the major obstacles to social and economic development.
Energy is the key to development in Africa and the foundation for industrialization. Like in Europe and other parts of the world, the expansion of renewables goes beyond the provision of reliable energy and climate protection. The study shows how the transformation of the African energy sector can succeed and what opportunities and challenges lie ahead in the next 30 years.