German companies want to emulate their Chinese competitors and become more active in Africa. But doing business in developing markets is risky. Export credit guarantees are a useful safety net.
The past decade has seen China intensify commercial activities in Africa to become the continent's major trading partner. Not surprisingly, German companies want a piece of the action as African economies are expected to grow significantly in the future.
According to Germany's Federal Ministry for Economic Cooperation and Development (BMZ), the past 10 years have seen Africa undergo its longest period of economic growth since the 1960s. The average growth rate across nations both rich and poor in natural resources was 5 percent.
A news study from business consultancy Roland Berger identifies a wealth of commercial opportunities in Africa, particularly in sub-Saharan regions.
Exporting goods to African nations often entails risks that individual companies or banks are unwilling to tolerate alone.
"Export credit guarantees protect German businesses from non-payment and are a useful tool for helping companies make the most of growth opportunities in Africa," said Andreas Klasen, an export expert at PricewaterhouseCoopers (PwC) professional services group.
"This so-called 'Hermes cover' has allowed us to support German firms involved in many successful commercial projects in Africa, from the export of machinery for a solar panel factory in Algeria to the construction of drinking water infrastructure in Angola."
Big chances for German firms
To help German companies expand in Africa, the German government contracted PwC to negotiate guarantees with the world's largest credit insurer, Paris-based company Euler Hermes, on its behalf. In December the two companies signed a partnership agreement with the African Export-Import-Bank, also known as Afrexim.
Many of the 48 nations in Sub-Saharan Africa, including Mozambique, Tanzania, Ghana and Nigeria, are among the fastest-growing economies in the world. They are starting from a low base, however. Although the region is home to 750 million people, it still accounts for less than 2 percent of world economic output.
While German exports to Africa as a whole increased by 7 percent since 2006, the value of export destined for Sub-Saharan Africa rose by an impressive 16 percent in the same period.
"There is still untapped potential for German companies," Klasen told Deutsche Welle. "The total value of global exports to Sub-Saharan Africa actually rose by 31 percent."
Guarantees boost trade
The German government guaranteed more than a billion euros worth of export deals with sub-Saharan African states last year.
"Export credit guarantees aim to make trade with Africa easier. That's why we've been working with Afrexim, and that's why we signed a new agreement with the African Trade Insurance Agency in Nairobi last year," Klasen said, adding that German companies benefit greatly from the regional know-how these organizations possess.
Afrexim was founded in 1993 by a consortium of African governments and private and institutional investors. Based in Cairo, it's mission is to finance and promote African trade. The African Trade Insurance Agency in Nairobi is an international financial organization founded by African states in 2001.
Author: Monika Lohmüller / sje
Editor: Sean Sinico