Time to rethink Africa

At GPI, we have been closely monitoring the social and economic impact of COVID-19 on our neighboring continent Africa. To better understand how the situation has evolved on the ground over the past months, we sat down with Dr Acha Leke, Senior Partner and Chairman of McKinsey’s Africa region. Dr Leke coauthored McKinsey’s highly acclaimed series of “Lions on the Move” reports that GPI also presented in Berlin in 2016. He is Co-Founder and member of the Global Advisory Council of the African Leadership Academy and Co-Founder of the African Leadership Network. Dr Leke is member of ONE’s Africa policy advisory board, the Lagos Business School advisory board, and President Kagame’s African Union (AU) reform steering committee.

We also wanted to learn more about what the pandemic means for German businesses engaged on the continent, thus we talked to two experts from Volkswagen South Africa (VWSA). Henning Jens was Director for Finance, IT and Strategy at VWSA until March 2020. Since the start of the pandemic he has been acting as General Representative Business Development Sub-Saharan Africa for VWSA in Berlin. His colleague, Andile Dlamini is Head of Public Relations at VWSA and is based in South Africa.

Here are our key takeaways:

COVID-19 heavily impacts local industries and forces Africa to enter into its first recession after two decades

Even though the continent does not seem to be that badly affected by COVID-19 on the health side, having registered 1.6 million cases and close to 40.000 death so far, which is relatively low in global comparison, the economic consequences are severe. According to Dr. Leke, after 25 years “the continent is going to, for the first time, enter into recession”. Not all countries are affected equally, of course. Dr Leke underlines that “some countries and some sectors are starting to rebound faster. You look at the telecom sector, (…) the retail sector, (…) the e-commerce sector. A number of countries actually did not go into recession because they started from already high growth rates”.

The manufacturing sector has felt the heavy impact of the pandemic on local industries, too. Volkswagen has been manufacturing in South Africa since 1951. Today, they employ close to 4000 employees at their main factory. Protecting these jobs has been the main objective of the company during the corona pandemic. According to Andile Dlamini, “there will be impact on final numbers in terms of sales and cars produced, but (…) we have managed to secure the jobs of our employees”.  However, not all companies have the same resources like a brand Volkswagen and Henning Jens is quick emphasize that “there are other companies who have lost half of their markets for a while”. He fears that businesses that are active on the continent might now reassess or even postpone their strategic projects due to the worldwide decline of demand for products made for export. Such development can seriously harm the local industry.

Creation of jobs is at the core of recovery plans

Addressing the high youth unemployment rate in African countries has also gained more relevance. Dr Leke underscores that “prior to the crisis, the continent needed twelve million jobs a year, but we were only creating about three (…). With the crisis, we are projecting that if it is really bad, up to a third of all jobs in Africa could be at risk”. Thus, the creation of jobs – by establishing an enabling environment for companies and entrepreneurs – represents a substantial part of economic recovery plans.

Now is the time to rethink African economies and make them more sustainable

Aside from the negative impact of the pandemic, Dr Leke agrees with other experts who regard the crisis as a real chance to reimagine African societies, economies and governments. An acceleration of Africa’s digital transformation has already been identified: “We see the digitization that used to take two years, now happening in two to three months even on the continent. And countries and companies that are more digitally advanced, have fared better coming out of this crisis“.

Africa also has the potential to be a real forerunner in sustainable technologies and renewable energies. Mr Jens from VWSA points out that “when it comes to climate change it looks like we are very Eurocentric in our regulations, but Africa can in a positive way contribute significantly to climate measures”. With the EU aiming to become climate neutral by 2050, the two continents have a unique chance to cooperate in the areas of climate policy and energy supply. “If you think about renewable energies, you are automatically in Africa”, Mr Jens concludes.

Pan-African cooperation and an African single market have huge advantages

 The long overdue African Continental Free Trade Area (AfCFTA) also poses great potential both for foreign investors as well as for individual African nations. According to Mr Dlamini, especially those outside of already existing economic zones are looking to profit from a combined market. “Economies of smaller countries will benefit more of this trade agreement”, he underlines. In order to bring in substantial foreign capital and to attract large investments in capital-intense industries “Africa really needs to become one market. I think it should become something like the EU”, Mr Jens adds.

Dr Leke also sees a momentum between African countries to come together and advocate for more regional and Pan-African solutions. The AfCFTA is therefore more important than ever: „We realize when we come together as one continent we can negotiate at a continental level, (…) There is a stronger need for much more cooperation amongst Africa. There is stronger need for us to really give in to regional and Pan-African strategies. It does not make sense for every country to compete with each other“.

Multi-sectoral cooperation paired with good political leadership is essential to success

As for how to best motivate more companies to invest in Africa, VWSA has been a vocal proponent of multi-sectoral cooperation for many years, frequently cooperating with the German Federal Ministry for Economic Cooperation and Development (BMZ) and other German businesses. “Never change a winning concept”, states Mr Jens. They are now working on a new initiative called Pan-African Mobility Alliance, utilizing all key learnings they have made with the successful Moving Rwanda project since 2018: “When you want to have sustainable and viable projects in so-called non-developed markets, you need broad cross-industrial cooperation paired with a good political partnership”.

Ensuring sustainable economic growth and stable jobs on the continent is at the core of a new comprehensive partnership between the EU and the African Union as well. A lasting recovery calls for a close cooperation between the two continents. Thus, Dr Leke believes that our interests are aligned: “I firmly believe that for Africa to succeed, we need a strong partnership with the EU. There is no question about it. I actually think that for the EU to succeed, the EU needs a strong partnership with Africa as well“.

More on This Topic:

• GP Interview with Dr David Fine & Ying Sunny Sun: "It is in everyone's interest to make this a successful outcome."
• GP Interview with Nathalie Delapalme: "If the pandemic’s impact is not tackled in Africa, no region will escape the backlash."
• GP Interview with Prof. Carlos Lopes: "The majority of African countries are in a situation of extreme vulnerability."