Africa: Overcoming German Businesses' Cold Feet in Africa

Volkswagen cars in a workshop in Kigali's Special Economic Zone.
18 November 2019

Many German businesses are reluctant to invest in Africa. But a new African business index might help build trust and foster better business relations.

Phanuel Wunu is a sought-after man whenever he comes to Germany, attending workshops and meeting business partners. His Coastline Innovations Group is a logistics company that provides services to the Ghanaian tourist industry. But Wunu has also become an important middleman for German companies looking to do business in the West African country. He helps German business delegations network in Ghana, and knows what they are after and value.

Intercultural understanding

"I see German business partners more like very skeptical, straightforward and strict," Wunu says. He feels that they have a clear idea of what they want from him. But, he says, that can be tricky, as Ghana's economic systems are not always clear-cut, something that can cause frustration. That is why he wants to help Germans understand the African business world better. Laughing, Wunu says that he first had to grow used to German customs, too. Time management was always an issue, he says, adding that "when Germans say 1 p.m., they really do mean 1 p.m."

Wunu is convinced that if both sides learned to better understand each other's culture and language and develop a sense of mutual trust, business between German and Ghanaian companies would thrive. One thing, after all, is clear: Africa's dynamic markets and major growth rates represent a lucrative opportunity for investors and businesses. Even so, German small and medium-sized businesses (SMBs) have been hesitant to enter the African market due to distrust. And so far, political initiatives have not succeeded in reassuring them.

African business index could change things

Jan Koetsier, an expert on African markets with the Institute for International Studies at the Hochschule Bonn-Rhein-Sieg (University of Applied Sciences, H-BRS), explains that many German entrepreneurs regard Africa as corrupt and conflict-ridden. To provide more nuanced information and a better overview of the African market, his institute and several project partners have now published an African business index for German SMBs.

The index is specially tailored to the needs of German SMBs and ranks 34 African countries in terms of their attractiveness for foreign investors. It also gives the businesses a better understanding of how popular their good and services would be on different African markets, how large these markets are, which trade barriers exist, what the respective logistical infrastructure is like, and how to find business partners and plan business trips. According to the index, Morocco, Egypt, South Africa and Kenya are the most promising markets for foreign investors.

Koetsier says German businesses tend to be more risk-averse than many other European companies. He says French and British entrepreneurs, for example, have been doing business with African countries for a long time. According to Koetsier, this is partly a result of ties that have roots in the French and British colonial era, but also because both states encourage business with Africa. Koetsier says that Germany is only now starting to focus on doing business with Africa.

Closer ties help build trust

Kenyan economist James Shikwati believes that encouraging German and African entrepreneurs to network and meet in person is the key to success. He also says the lack of[economic] data is a problem and that the business environment plays a role, too. The economist says Germans hear a lot about Africa's informal economy, which puts them off. But he adds that if they knew how much profit this sector generated, they would surely want to get involved.

Shikwati says that so far, African governments are the ones who provide investors with market data. But he says they should instead foster visits and contacts between German and African businesses. German businesses are eager to get reliable economic data to make decisions, he says, but this data is often hard to come by in Africa.

That is why he urges African businesses to play their part, too. He says "small African companies must determine what their specific needs are and then meet German companies to agree customized business deals."

Wunu, meanwhile, is already doing exactly this whenever he comes to Germany. This time, he is meeting lawmakers from North Rhine-Westphalia who want to encourage regional German companies to do business with Ghanaian businesses. And Wunu's experience makes him just the person to turn to.

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