2. Overview of Emerging Economic Relations and Strategies
Over the period 2012–18, the annual volume of trade between Central and Eastern European and sub-Saharan African economies rose gradually, as shown in Figure 1. All Central and Eastern European countries have experienced growth in exports – in the case of Poland and the Czech Republic, by more than 500 per cent and 400 per cent respectively. Most of the trade undertaken by Central and Eastern European countries is overwhelmingly with other EU member states. (Slovakia, for instance, conducts 80 per cent of its trade within the EU.)
Figure 1: CEE exports to, and imports from, sub-Saharan Africa, 2012–18
— Source: Compiled from Eurostat, EU Trade since 1988 SITC.
Figure 1: CEE exports to, and imports from, sub-Saharan Africa, 2012–18
Exports from sub-Saharan Africa to Central and Eastern Europe consist predominantly of raw materials such as cocoa, tobacco, aluminium, sugar, rubber, mineral ores, coffee, tea and spices. As a result, the value of total exports of sub-Saharan African goods to Central and Eastern Europe remains volatile from year to year. Key exports from Central and Eastern Europe to sub-Saharan Africa are, along with cereals, predominantly manufactures such as machinery, mechanical appliances, vehicles, and iron and steel goods.4
The strong growth in goods trade since 2004 is not mirrored in investment flows. Poland – reflecting the size of its economy – is the frontrunner in investment in sub-Saharan Africa.
By 2017 the total stock of Polish FDI in sub-Saharan Africa stood at $238 million (see Table 1). The sector destinations for Central and Eastern European investment in sub-Saharan Africa range from agribusiness (e.g. the dairy sector and agricultural machinery), industrial equipment, and extractives (e.g. minerals, oil and gas) to software and information and communications technology (ICT) services (e.g. fintech and service provision software).5
Development gains can be substantial in specific contexts. A fair-trade macadamia and cashew nut processing facility in Kenya, for example, established with support from Slovakia’s Integra Foundation, generates 400 direct jobs and other employment indirectly through its supply chains (see Box 1). URSUS, a Polish tractor manufacturer, has set up an assembly plant in Ethiopia that created 200 jobs for Ethiopians – mostly women – and also buys in training (skills transfer) from Polish experts, and has helped lay the foundation for a move away from subsistence to commercial agriculture.6 PF Nonwovens (formerly Pegas Nonwovens), a Czech non-woven textile producer, completed the construction of a new production facility in Cape Town.7 South Africa, that provides employment and training opportunities for 200 people.8 Even when Central and Eastern European companies are only engaging in trade with Africa, transfer of knowledge is frequently included as part of the deal to maximize customer satisfaction: for example, the Czech tractor company Zetor Tractors agreed an export deal with a Zambian importer that was to employ Czech technicians in a support and training role for a two-year period.9 Compared with Poland, however, other Central and Eastern European countries invest on a smaller scale in sub-Saharan Africa. The statistics below do not include, for instance, possible investments of €172 million by Hungarian companies in Angola that were announced in early 2019.10 In relation to the presence of other investors, however, the Central and Eastern European economies play a marginal role, with the US, UK, France and China dominating (see Figure 1). In addition, outward Central and Eastern European FDI still mostly flows to developed markets.
Box 1: Ten Senses Africa
The Ten Senses Africa (TSA) project is an example of private investment from the Central and Eastern European region with wider development outcomes – in this case by Slovakia’s Integra foundation and social investment fund – into sub-Saharan Africa.11 TSA is engaged in the fair trade of organically produced macadamia and cashew nuts in East Africa. Currently, TSA buys macadamia nuts from 1,300 farmers and a processing facility provides 400 direct jobs in Kenya, as well as training in organic growing techniques. A fair-trade business model guarantees a fair price to farmers, and the company has established distribution lines in large supermarket chains across Europe and North America.
Table 1: FDI positions of Central and Eastern European countries in sub-Saharan Africa 2013–17 ($ million)
|
2013 |
2014 |
2015 |
2016 |
2017 |
|
|---|---|---|---|---|---|
|
Czech Republic |
1 |
1 |
0 |
3 |
14 |
|
Estonia |
1 |
2 |
2 |
2 |
3 |
|
Hungary |
8 |
7 |
53 |
4 |
4 |
|
Poland |
211 |
174 |
196 |
224 |
238 |
|
Slovakia |
0 |
0 |
0 |
0 |
0 |
|
Slovenia |
279 |
260 |
239 |
125 |
125 |
Source: Data compiled from OECD and national development banks.12
Note: FDI values for Bulgaria and Romania are listed by the OECD as ‘non-publishable and confidential’.
Figure 2: Top 10 investor economies in Africa by FDI stock, 2017 compared with 2013 ($ billion)
— Source: UNCTAD, World Investment Report 2019.13
Figure 2: Top 10 investor economies in Africa by FDI stock, 2017 compared with 2013 ($ billion)
Contrary to common assumption, given the differences in economic development, investment flows are not unidirectional from Central and Eastern Europe to sub-Saharan Africa. In reality, the largest investment flow between the two blocs occurs in the opposite direction – from South Africa to Central and Eastern European countries. The sectors of the latter economies that are most appealing to South African capital are real estate – with the South African property developer NEPI Rockcastle being the largest real estate investor in Central and Eastern Europe14 – and, to a lesser extent, the brewing, retail and paper processing sectors.
Large South African multinational enterprises (MNEs) find that the Central and Eastern Europe region offers an overall stable and predictable business environment, wider EU market access and low-cost access to an educated labour force. However, the trend of South African capital movement abroad to Central and Eastern Europe has also been the result of ‘push factors’, or a specific set of domestic circumstances – i.e. the slow growth of the South African economy, coupled with political uncertainty – than of a targeted approach towards Central and Eastern Europe.15 Commercial investments in Central and Eastern Europe often circumvent government involvement, as large enterprises have the resources to venture abroad on their own terms.
Contrary to common assumption, investment flows are not unidirectional from Central and Eastern Europe to sub-Saharan Africa. In reality, the largest investment flow between the two blocs occurs in the opposite direction – from South Africa to Central and Eastern European countries.
While the development impact might not be felt in non-productive sectors such as real estate, other investment sectors do have clear benefits for local populations. For instance, the South African non-food retailer Pepkor, with a presence (as Pepco) in Poland, the Czech Republic, Romania, Hungary, Slovakia and Croatia, operates 1,300 stores across Europe, and employs more than 12,000 people.16 Mondi Group, a global paper and packaging group with its origins in South Africa, is the biggest private-sector employer in the Lower Liptov region of Slovakia, where it operates a manufacturing plant.17 The employment benefits were perhaps most clearly demonstrated by SABMiller’s engagement in Central and Eastern Europe (before its acquisition by Anheuser-Busch InBev in 2016, which resulted in the selling-off of its Eastern European assets later that year). In 2013, of all of SABMiller’s European production facilities its Polish brewery provided the greatest employment (3,261 jobs), followed by its breweries in the Czech Republic (2,045 jobs) and in Romania (1,415 jobs). Moreover, the number of agricultural jobs indirectly generated by SABMiller’s activities was estimated to be 24,400 in Poland, 5,800 in Romania and 3,500 in the Czech Republic.18 According to the Polish Ministry of Economy, over 3,000 jobs were created in Poland through investments from South Africa.19
Certain Central and Eastern European governments have articulated and implemented commercial approaches to Africa since the early years of the decade. The Hungarian government was among the first to do so, announcing a new foreign policy strategy, termed ‘Opening to the South’, in 2015. This strategy placed a particular focus on expanding trade with Latin America and Africa, and used the opening of new embassies (in the case of sub-Saharan Africa, in Angola, Ethiopia and Ghana) and trading houses (in Angola, Ethiopia and Kenya) as tools for the achievement of its foreign policy goals. Meanwhile, in 2013, Poland initiated a ‘Go Africa’ strategy to intensify its trade relationship with a select group of African countries.20 Moreover, the current Polish Foreign Policy Strategy 2017–202121 emphasizes the need to establish greater commercial links between countries that are not in Poland’s vicinity, including African countries. Several documents relate to Czech engagement in Africa: these include the current foreign policy as published by the Czech Ministry of Foreign Affairs;22 the commercial strategy for North African states,23 published in 2006 by the Ministry of Industry and Trade; and a strategy for sub-Saharan Africa24 that includes strengthened economic diplomacy as one of its dimensions.25 Bulgaria and Romania, despite their growing trade with sub-Saharan Africa, have not yet established commercial policies towards Africa.26 Likewise, in sub-Saharan Africa itself, there are as yet no national commercial strategies directed towards furthering relationships with Central and Eastern Europe. This is even so in the case of South Africa, whose regional investment promotion offices have, nonetheless, a pragmatic orientation towards Central and Eastern Europe.
It is important to keep in mind that Central and Eastern Europe forms part of a larger political and economic entity, in the form of the EU, which has put in place its own collective commercial strategies with sub-Saharan Africa. Taking a broader view, therefore, Central and Eastern European countries benefit from the wider framework of Africa–EU relations – a framework that is increasingly centred on investments rather than aid. This particularly relates to the EIP, an ambitious initiative launched in 2017 to spur private sector investment in the EU ‘Neighbourhood’ and Africa, as well as the Africa-Europe Alliance for Sustainable Investment and Jobs, announced in 2018.27
4 Marinov, E. (2017), ‘Bulgaria And Romania Trade with Sub-Saharan Africa: A Comparison’, in Christova-Balkanska, I. and Marinov, E. (eds) (2017), Bulgaria and Romania: Country Members of the EU, Part of the Global Economy: International Scientific Conference Proceedings, Sofia:
ERI-BAS Books, Bulgarian Academy of Sciences-Economic Research Institute, pp. 163–74.
5 Some Polish companies that have invested in sub-Saharan Africa include: Kulczyk Investments (gas and refineries), Asseco (IT), Polskie LNG (regasification plants), H. Cegielski-Poznań (turnkey power plants), Grupa Azoty (chemical fertilizers), Consus Carbon Engineering, Exalo Drilling and Krezus SA (bauxite in Guinea). In the agricultural sector, Groupa Azoty is a pioneer, along with the Polish tractor manufacturer URSUS.
6 Deutsche Welle (2016), ‘Polish tractors plowing a furrow to Africa’, 16 June 2016, https://www.dw.com/en/polish-tractors-plowing-
a-furrow-to-africa/a-19336751 (accessed 11 Jun. 2019).
7 PFNonwovens a.s. (2019), Half-Year Report 2019, p. 5, http://www.pfnonwovens.cz/file/2567/Half%20Year%20Report%202019.pdf (accessed 18 Oct. 2019).
8 Engineering News (2017), ‘R1.3bn Atlantis fabrics manufacturing facility to create 200 jobs’, 1 March 2017, http://www.engineeringnews.co.za/article/r13bn-atlantis-fabrics-manufacturing-facility-to-create-200-jobs-2017-03-01/rep_id:4136 (accessed 18 Oct 2019).
9 Ženková Rudincová, K. (2018), ‘Sub-Saharan Africa in the Czech Foreign Policy 2017: Approaching Africa as a Partner’, in Kizeková, A. (ed.), Czech Foreign Policy in 2017: Analysis. Prague: Institute of International Relations, pp. 204–20.
10 Daily News Hungary (2019), ‘Several Hungarian firms investing in Angola, says Hungarian FM in Luanda’, 13 March 2019,
11 Ten Senses Africa (2017), ‘We are Ten Senses Africa’, https://tensensesafrica.com/our-story/ (accessed 21 Oct. 2019).
12 OECD Stats (2019), ‘FDI positions by partner country BMD4’, https://stats.oecd.org/Index.aspx?DataSetCode=FDI_POS_CTRY# (accessed 16 Jun. 2019). Based on immediate investor principle; tracking FDI is notoriously difficult as many companies ‘route’ their investments through third countries for favourable tax or regulatory treatment.
13 United Nations Conference on Trade and Development (2019), World Investment Report 2019. https://unctad.org/en/PublicationsLibrary/wir2019_en.pdf (accessed 18 Oct. 2019).
14 Fin24 (2018), ‘Spotlight on SA REITs and global real estate market’, 12 March 2018, https://www.fin24.com/Money/Property/spotlight-
on-sa-reits-and-global-real-estate-market-20180312 (accessed 11 Jun. 2019).
15 Research interviews (2018).
16 Retail Insight Network (2018), ‘Steinhoff reportedly considering ‘takeover interest’ in fashion retailer Pepco’, 4 July 2018,
https://www.retail-insight-network.com/news/steinhoff-reportedly-planning-buy-stake-fashion-retailer-pepco/ (accessed 11 Jun. 2019).
17 Mondi Group (2017),’Slovakian Prime Minister Róbert Fico visited the biggest private employer in the region of Lower Liptov’, 6 July 2017, https://www.mondigroup.com/en/newsroom/media-centre/press-releases/2017/slovakian-prime-minister-r%C3%B3bert-fico-visited-the-biggest-private-employer-in-the-region-of-lower-liptov/ (accessed 11 Jun. 2019).
18 Kruis, G., Bleeker, Y., Stokkel, R., Theuws, R.-J., Bertling, L. and de Wit, W. (2013), The Contribution Made by SABMiller to the European Economy, Amsterdam: EY Tax Advisors and Regioplan, p. 9.
19 Polus, A. (2016), ‘Polish-Sub-Saharan African Economic and Political Relations After 1989’, Politeja, 42, pp. 93–110; doi:10.12797/Politeja.13.2016.42.07 (accessed 20 Jun. 2019).
20 The ‘Go Africa’ project targeted Algeria, Botswana, Ghana, Morocco, Mozambique, Nigeria, South Africa, Senegal and Zambia as priority countries. See Harper, J. (2016), ‘Polish tractors plowing a furrow to Africa’, Deutsche Welle, 16 June 2016, www.dw.com/en/polish-tractors-plowing-a-furrow-to-africa/a-19336751 (accessed 21 Jan. 2017).
21 Ministry of Foreign Affairs, Republic of Poland (undated), Polish Foreign Policy Strategy 2017–2021, https://www.msz.gov.pl/resource/0c98c3b2-9c5d-4c42-8761-f7827134ee76:JCR (accessed 12 Jun. 2019).
22 Ministry of Foreign Affairs of the Czech Republic (2019), ‘Concept of the Czech Republic’s Foreign Policy’, https://www.mzv.cz/jnp/en/foreign_relations/policy_planning/concept_of_the_czech_republic_s_foreign.html (accessed 11 Jun. 2019).
23 Petrík, M. (2006), ‘The Strategy for Promoting Trade and the Economic Interests of the Czech Republic in North African Countries’, Ministry of Industry and Trade of the Czech Republic, https://www.mpo.cz/en/guidepost/ministry/minister/the-strategy-for-promoting-trade-and-the-economic-interests-of-the-czech-republic-in-north-african-countries—12426/ (accessed 11 Jun. 2019).
24 Ženková Rudincová (2018), ‘Sub-Saharan Africa in the Czech Foreign Policy: Approaching Africa as a Partner’.
25 The strategy is a non-public document.
26 Marinov, E. (2017), ‘Bulgaria And Romania Trade with Sub-Saharan Africa: A Comparison’.
27 European Commission (2018), Your Guide to the EU External Investment Plan, https://ec.europa.eu/commission/sites/beta-political/files/external-investment-plan-guide-nov17_en.pdf (accessed 18 Oct. 2019).