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Investing in the Europe-Africa Partnership

Analysis - 16 December 2021

The 6th African Union - European Union Summit should be held in Brussels on February 17-18, 2022. It will be the first Summit held since 2017. Since Ursula von der Leyen took office, the Commission has sought to push relations with Africa to the top of the agenda: her first trip outside Europe was to Addis Ababa, where the African Union is headquartered. The February Summit will be a chance to make good on this promise. 

In Institut Montaigne’s June 2019 report Europe-Africa: A Special Partnership, we argued for a new relationship between the two continents, with an emphasis on the private sector. As the heads of EU Member States gather on December 16 and 17 to discuss the February Summit agenda, they need to focus on businesses from both sides of the Mediterranean, as they play a central role in the relationship. 

The EU is showing its intention to move from a logic of aid to one of investment on the continent, which will necessarily be channeled through the African and European private sectors. The External Investment Plan (EIP) adopted in 2017 exemplifies this paradigm shift and represents a real step forward in the European conception of its relationship with Africa. However, it should seek to go beyond. 

On the one hand, it is necessary to limit risks - whether real or perceived - in order to stimulate European investment in Africa and contribute to the development of African businesses. To do so, the European Union needs to bet on mixed-financing initiatives blending public and private resources, especially when it comes to riskier projects that are often ignored despite the fact that they will most likely generate economic growth. Another efficient way to support European and African businesses investing in Africa is to use guarantee instruments to limit risks associated with these investments.

It may be helpful to develop and institutionalize European chambers of commerce and industry in African countries.

Finally, while the EU has increasingly been targeting the private sector in its investment policy (notably through the Neighborhood, Development and International Cooperation Instrument - NDICI - created in 2020), the processes enabling businesses to unlock financing are too slow and burdensome. Here lies one of Europe’s weak spots, especially compared to emerging countries investing in Africa. 

More effort is needed to facilitate access to EU instruments to African SMEs, which in 2019 accounted for over 75% of formal businesses, 50% of employment and 40% of the continent’s GDP.In this regard, it may be helpful to develop and institutionalize European chambers of commerce and industry in African countries, which would be tasked with stirring private sector dialogue across the Mediterranean, and would help disseminate clear information on available funds. 

On the other hand, it is necessary to help build a business environment that is private investment-friendly. This must be a common priority in the relationship between the two continents. Indeed, the business environment and its juridical insecurity are the first causes of hurdles, extra costs and of an overvaluation of economic risk in Africa.

It is necessary to help build a business environment that is private investment-friendly. 

European businesses, which are subject to increasing regulatory oversight, state very clearly that stability is a prior condition to any investment. Similarly, the growth of African medium-sized businesses and market leaders requires taking down barriers to business creation, to uncollateralized loans access and to international trade. A Euro-African court of arbitration to deal with commercial, financial and administrative litigation involving European businesses in Africa and African businesses in Europe could be created. The EU can also play an important role in improving the business environment by strengthening its technical assistance policy, preferred to budgetary support. This policy needs to target businesses and lift barriers to investment, focusing on project implementation and legislative harmonization. 

With the Covid-19 crisis and its consequences on African economies increasing risks for businesses investing in Africa, support to European and African private sectors should be set as a priority in the EU-AU relationship - and should as such be central to discussions in the February Summit. 

 

Copyright: EDUARDO SOTERAS / AFP

 

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