4. Barriers to Increased Investment
Many private-sector actors in Central and Eastern Europe believe that sub-Saharan Africa presents growth opportunities, and recognize that as economies develop an emerging middle class will drive consumption.40 Business forums organized by CCs and other bodies to build new partnerships between Central and Eastern European and sub-Saharan African companies regularly draw large numbers of participants.41 Sectors considered to be the most promising for investment by Central and Eastern European private-sector actors are:
- Agriculture, agribusiness and food processing (e.g. fruits and juices, dairy, meat processing, agricultural machinery)
- ICT (e.g. digitization of services, fintech, mobile payment services)
- Transport (e.g. tramways, light railways and other public transport systems)
- Construction (e.g. low-cost residential housing)
- Water and waste management
Despite the acknowledged potential, several challenges impede Central and Eastern European investment ventures. One of the major challenges can be the mindset of the investor companies themselves. They are not solely disincentivized by what they perceive as a ‘tough’ business environment in Africa, but also by what some interlocutors in research interviews referred to as a ‘comfortable environment at home’. When domestic growth is strong and unemployment rates are low, it is hard to incentivize the private sector to try its chances abroad.42 Moreover, when the private sector is willing to venture into investment abroad, they prefer markets in close proximity and with cultural similarities, as found in the EU Neighbourhood.43
There are a tremendous number of variables in the business climates of particular countries across sub-Saharan Africa, and access to quality information is imperative for newcomers to the continent.
Nuanced discussion, information and analysis of particular sub-Saharan African markets and sectors is often lacking. The V4 private sector frequently cites, as the most common obstacles to investment, unstable political environments, widespread corruption, a lack of credible partners, foreign exchange controls, regulation pertaining to the repatriation of profits, and what they regard as unfair competition practices,44 as well as overly bureaucratic governments.45 While these are real issues in some cases, and obstacles in their own right, in the absence of in-depth and current political analysis, companies come to rely upon available information about the continent as a whole (which is often generalized and based on outdated anecdotal evidence) to inform their decisions and to help them draw conclusions. There are a tremendous number of variables in the business climates of particular countries across sub-Saharan Africa, and access to quality information is imperative for newcomers to the continent.
Diplomatic missions are often a contact point for these private-sector actors. They are relied upon to provide country-specific political and economic information and credible local partner contacts; they also serve as diplomatic ‘credibility boosters’. However, the reality of resource constraints is such that either Central and Eastern European countries have no national representation in most sub-Saharan African countries (nor do they host sub-Saharan African embassies in their home country), or they are forced to operate with staff constraints (for instance, having only one commercial officer within a mission).
Where a private-sector actor has overcome both the mental and information barriers to investment, and has identified a suitable local partner(s), access to either commercial or government financing and/or loans becomes the decisive step that either drives forward or puts a brake on its investment plans.46 For many commercial banks, Africa still presents too high a risk to justify affordable lending to businesses. Most national financial institutions of Central and Eastern European countries do not have financial instruments in place to support the private sector, or they provide too little in terms of funding – e.g. some business trips are sponsored in the early stage of contact by CCs in the investor nation, but resources are lacking to ensure follow-up once initial contact has been made.
The level of interest and engagement of African counterparts matters, too. The considerable commercial interest and attention that Africa draws from the rest of the world47 could place some sub-Saharan African countries in a position where they are able to be more strategic in choosing investment partners. Aside from the more traditional partners from Western Europe and North America, now China, India, Turkey, Japan, South Korea, Malaysia, and the Gulf states (particularly Saudi Arabia and Qatar) are among countries vying to complete favourable bilateral and commercial deals. Due to limited administrative resources and competing priorities within sub-Saharan African countries, Central and Eastern European investors may not occupy a position of priority in the competitive landscape.
40 Research interviews (2019).
41 Research interviews (2019).
42 For instance, as of April 2019, the Czech Republic had the lowest unemployment rate among the EU-28 member states, while Poland was concurrently enjoying its 27th year of continuous real GDP growth.
43 Other barriers that were also mentioned in the research interviews include language barriers: not many business people in Hungary speak English, for instance.
44 Research interviews (2019). A number of CEE participants cited some commercial practices by state-owned or state-backed Chinese enterprises, especially in sectors such as construction and transportation, as making it hard for them to compete. Some businesses reported having regarded themselves as ‘closing in’ on a deal in a competitive tender, only to find that they had ultimately lost to Chinese companies that were able to bid
for projects at lower cost.
45 Research interviews (2019).
46 Research interviews (2019).
47 The Economist (2019), ‘Africa is attracting ever more interest from powers elsewhere’, 7 March 2019, https://www.economist.com/briefing/2019/03/07/africa-is-attracting-ever-more-interest-from-powers-elsewhere (accessed 13 Jun. 2019).