The Potential of Investment Partnerships for Mutual Benefit
Research paper
Published 31 October 2019
Updated 11 December 2020
ISBN: 978 1 78413 345 0
Trade between Central and Eastern Europe and sub-Saharan Africa has increased significantly in the last decade and a half. There is a strong case to be made for greater economic re-engagement, especially in terms of investment, that has the potential to support inclusive growth in both regions.
Promotion of inward investment in sub-Saharan Africa requires a genuine two-way partnership approach and bilateral efforts. Central and Eastern European governments – especially those belonging to the V4 group – have a set of institutions in place to support the aspirations of their businesses (primarily SMEs) with operations in Africa, and can benefit from EU membership. A principal distinction needs to be made between MNEs and SMEs, as MNEs might have the resources to venture into a foreign market regardless of state support, while SMEs are not in a position to do so on their own.
Central and Eastern European governments could exploit the advantages of EU membership in order to provide their businesses with financial assistance. A step towards increasing financing support (in the form of investment guarantees) can be achieved through the cooperation of national development finance institutions in the framework of the EU’s ambitious new foreign investment programme, the EIP (see Box 5). The EIP is implemented through a decentralized plan whereby funds are dispersed to international financial intermediaries, such as the European Bank for Reconstruction and Development, the Netherlands Development Finance Company (FMO) or the German KfW, which then design a programme for final beneficiaries (principally local banks and entrepreneurs in Africa) together with other institutions. The Czech-Moravian Development Bank (CMZR) and the Polish Development Bank (BGK) are undergoing the process of pillar assessment in order to be able to onward-lend funds from the European Commission, while legislation to extend the mandate of Slovakia’s Eximbanka to include external lending was under consideration in 2019.75
Provided these Central and Eastern European national financial institutions are successful in passing the pillar assessment,76 the Commission should ensure that they become partners in the EIP in the next disbursement – mindful of the overall objective of private investment in Africa – as this could ensure access to funds for Central and Eastern European companies wishing to undertake mutually beneficial projects in Africa with a development objective. It is also important to avoid replicating the scenario that characterizes Central and Eastern European countries’ role as regards the European Development Fund. While such countries have been net donors to the joint fund for development cooperation projects, their civil society organizations (CSOs) and contractor companies have not been able to access funds to any significant degree. At this point, taking into consideration that the EIP is not yet operational and that the European Commission acts on the invitation of CCs, there is a low level of awareness of the plan among Central and Eastern European business entities.77
The EIP is formed of three pillars that aim to provide a comprehensive solution to a lack of investment in Africa: the European Fund for Sustainable Development (EFSD); technical assistance; investment climate. EFSD as the first pillar represents the financial arm of the programme, serving to incentivize companies to invest and to ‘de-risk’ potential investment in Africa through financial guarantees (commercial, political, etc.) and through ‘blending’. The latter is an overarching approach whereby different funding sources are used to achieve development objectives. The EIP is a push by the European Commission to include the private sector as recipients of official development assistance. Private-sector enterprises can apply for EU funds, so long their project ideas demonstrate a clear development impact. Any company, regardless of origin – be it European, African or otherwise – can apply for funds that aim to contribute to development goals. Priority areas for investment – also termed ‘investment windows’ under the EFSD have been determined as: sustainable energy and connectivity; micro-enterprises and SMEs; sustainable agriculture, rural entrepreneurs and agribusiness; sustainable cities; and ‘Digital4Development’, a key plank of EU development policy.
In late 2018, the entire guaranteed amount of €1.54 billion has been allocated to 28 financial institutions to disperse funds to businesses in both the European Neighbourhood and Africa. The first guarantee was signed with the Netherlands-based development bank FMO in December 2018.
Aside from EU funds, another way to put greater financial support at the disposal of the private sector is through the reform of bilateral development assistance programmes. In its latest round of peer reviews, the OECD issued recommendations to rethink the development assistance programme of the Central and Eastern European members of the OECD,78 particularly the tied aid dimension (where credits to developing countries are made conditional upon the purchase of goods or services from the credit providing nation).79 This type of aid benefits the companies from the donor country more than the developing country itself. These aid practices could be changed to provide investment guarantees and equity financing to companies interested in expanding into Africa. They could be modelled on existing EU-15 development assistance programmes that have already made the leap to encouraging private-sector development support – for instance, the programme introduced by the government of the Netherlands, which has set up a Dutch Good Growth Fund80 and a Dutch Trade and Investment Fund.81
Lastly as regards finance, Central and Eastern European national financial institutions can provide financing directly by setting up funds for businesses interested in Africa. Overall, with some exceptions, these institutions provide more support to trade-oriented businesses (in the form of export credits, insurance, etc.) than to investment. The Hungarian Eximbank does not typically issue loans for investment projects in Africa due to high levels of risk;82 however, it was announced in March 2019 that Eximbank had set up a €40 million fund to provide support for investments in the spheres of production, and of research and development.83 In Poland, the BGK offers financing for the expansion of Polish companies abroad (ranging from the acquisition of companies and/or assets of companies abroad, to construction of production plants and the establishment of joint ventures abroad with a foreign partner) through the Polish International Development Fund, with individual loans mostly being in the region of €8 million–€10 million.84 The Slovak Eximbanka does not provide loans, while the Czech Export Guarantee and Insurance Corporation (EGAP) offers insurance for investments abroad. Where national development finance institutions do not provide financing, they help with advice and typically refer companies to multilateral financing institutions such as the World Bank, the European Investment Bank or European Commission instruments.
Provision of quality information needs to improve, in order to counteract both the negative perceptions of doing business in Africa and the widespread belief at company level that the African market is too hard to penetrate.
While institutional coverage of sub-Saharan Africa is not comprehensive, it has become more sophisticated and inclusive (covering more countries) over the years. As a first resort, businesses will usually turn to the respective committees in charge of Africa in their national CC, provided that they have membership thereof. CCs facilitate business-to-business meetings with potential partners in Africa, typically in collaboration with both the relevant Ministry of Foreign Affairs and with diplomatic offices (embassies and consulates) in the country concerned. In fact, the local infrastructure has evolved to include institutions other than diplomatic outposts which can offer business services and advice (business-to-business matchmaking, quality legal representation, and so on) to potential investor companies. In the past few years, Czech, Hungarian and Polish trade offices have been established to provide these services to private-sector actors based in their respective countries.
Aside from the official government structures, various bilateral business councils and CCs, as well as privately owned trade promotion institutions (such as the Hungarian Trade and Cultural Centre, the Czech–Ghanaian CC and the Polish-established Council of Investors in Africa) provide supplementary service options to companies. Most of these institutions are focused on trade rather than investment. The work of investment promotion agencies is also heavily oriented towards inward investment. Only the Polish Investment and Trade Agency (PAIH) has an explicit mandate to focus on both outward and inward investment, whereas the Slovak Investment and Trade Development Agency (SARIO), the Business and Investment Development Agency of the Czech Republic (CzechInvest) and the Hungarian Investment Promotion Agency (HIPA) are focused solely on inward investment. To ensure better information support, a practical step would be to extend the mandate of investment promotion agencies to include outward investment. Bilateral investment cooperation, in terms of joint ventures in Africa, exists between Turkey and Hungary.85 More direct cooperation with African counterparts exists between the South African and Polish state institutions.86 Table 5 below lists the institutions in the V4 countries that are involved with Africa, and summarizes their roles. It can be seen that the types of support that businesses receive are not uniform across the V4.
Provision of quality information needs to improve, in order to counteract both the negative perceptions of doing business in Africa and the widespread belief at company level that the African market is too hard to penetrate. One useful approach is for governments to increase the visibility of their efforts by publicizing success stories. Such steps might provide the required impetus for risk-averse enterprises to pursue their chances abroad.
|
Poland |
Czech Republic |
Hungary |
Slovakia |
||
|---|---|---|---|---|---|
|
Information and facilitation services, etc. |
Investment promotion agencies (IPAs) |
PAIH – both outward and inward FDI mandate and geographical focus on Africa |
CzechInvest – focus on inward FDI |
HIPA – Focus on inward FDI |
SARIO – focus on inward FDI |
|
Foreign trade offices |
Yes Côte d’Ivoire, Ethiopia, Kenya, Nigeria, Senegal |
No |
Yes 41 across the world, most of them in Africa and Asia87 |
No |
|
|
Business-to-business matchmaking, business investment forums (in coordination with CCs) |
Yes |
Yes |
Yes |
Yes |
|
|
Financial |
National development institutions |
Polish Development Bank (BGK) |
Czech-Moravian Development Bank (CMZR) Czech Export Guarantee and Insurance Corporation (EGAP) |
Hungarian Eximbank |
Slovak Eximbanka |
|
Type of financing available |
Private equity and investment guarantees |
Insurance |
Eximbank Fund; Credit line (limited to Angola) |
n.a. |
|
Information support is closely linked to on-the-ground diplomatic representation of Central and Eastern European countries in sub-Saharan Africa. While diplomatic representation has increased over the years, the coverage is not extensive (see Table 6). More importantly, both depth of engagement and high-level representation are still lacking. Aside from the limited number of embassies, the number of embassy staff – in particular, of economic counsellors – is not sufficient to foster greater contact. Moreover, current contact at the highest levels of government is not frequent enough to foster closer links. Both Central and Eastern European and sub-Saharan African countries have started the long-term process of intensifying political relations. Typically, Central and Eastern European countries – especially those in the V4 group – will organize annual state visits at deputy ministerial level, while some have also set up regular bilateral economic cooperation commissions with some sub-Saharan African countries.88 However, heads of state or government or visits by relevant ministers occur only infrequently.
The key to successful partnership is a continuous relationship, maintained through intense contact rather than one-off, symbolic political visits.89 Central and Eastern European countries that have the means to open up embassies and allocate more staff to key positions should do so if they wish to deliver on a long-term Africa strategy. However, with governments confronted with often scarce resources and competing priorities, increasing the number of diplomatic missions abroad is not a favoured option. A rethink in policy, i.e. considering a more targeted and proactive approach, as opposed to expansion into many different corners of sub-Saharan Africa, could be beneficial.90 For those less strategically important countries where V4 countries would still like to maintain a presence, either the network of 47 EU delegations across Africa or the separate network of national consulates (and honorary consulates) can provide a source of political presence and information.
|
Country |
Embassy |
Consulates and honorary consulates |
|---|---|---|
|
Czech Republic |
Rep. Congo, Ethiopia, Ghana, Kenya, Nigeria, Senegal, South Africa, Zambia, Zimbabwe |
Cameroon, Cabo Verde, Rep. Congo, DRC, Djibouti, Gambia, Guinea, Malawi, Mali, Mauritania, Mauritius, Mozambique, Niger, Rwanda, Seychelles, Tanzania, Togo |
|
Hungary |
Angola, Ethiopia, Ghana, Kenya, Nigeria, South Africa |
Botswana, Cameroon, Cabo Verde, Djibouti, Gambia, Ghana, Guinea, Kenya, Madagascar, Mali, Mauritius, Namibia, Nigeria, Senegal, Seychelles, South Africa, Sudan, Tanzania, Uganda, Zambia |
|
Poland |
Angola, Ethiopia, Kenya, Nigeria, Senegal, South Africa |
Benin, Burkina Faso, Burundi, Cameroon, Côte d’Ivoire, Eritrea, Gabon, Ghana, Kenya, Madagascar, Mauritania, Mozambique, South Africa, Sudan, Tanzania, Uganda, Zambia, Zimbabwe |
|
Romania |
Angola, Ethiopia, Kenya, Nigeria, Senegal, South Africa, Sudan, Zimbabwe |
Central African Republic |
|
Slovakia |
Ethiopia, Kenya, Nigeria, South Africa |
Cameroon, Ethiopia, Guinea, Kenya, Malawi, Mauritius, Mozambique, Nigeria, Senegal, Seychelles, South Africa, Sudan, Togo, Uganda, Zambia |
High-level visits serve as a credibility booster for accompanying business delegations from Central and Eastern European countries, and can signal the seriousness of intent to do business. A diplomat from one Central and Eastern European country pointed out that the entry of Western companies into Africa is often accompanied by a visit by a head of state or government to facilitate talks, as when German Chancellor Angela Merkel visited Ghana in August 2018.91 While it may not always be possible for a foreign head of state or government to pay an official visit, regular visits by relevant ministers (i.e. representing an elevation of discussions from deputy ministerial level) are a feasible option. Moreover, Central and Eastern European countries can utilize the platform provided by their respective presidencies of the Council of the EU (scheduled to be held by Croatia in the first half of 2020, by Slovenia in the second half of 2021 and by the Czech Republic in the second half of 2022) and ‘post-Cotonou’ negotiations92 to strengthen political dialogue with sub-Saharan African countries.
Lastly, cultural links present an important dimension and should form part of a long-term business approach to Africa. Cultural ties break down stereotypes and open up the possibility for a more open-minded approach to doing business in the continent. The Western European (or rather EU-15) presence in Africa can in part also be explained by closer cultural links resulting from the historical colonial relationship and current diaspora populations and engagement. One past approach that can be utilized by Central and Eastern European investors to intensify both political and business contacts is scholarship programmes which during the socialist period provided education opportunities for African students at Central and Eastern European universities. In many instances, the increased drive for trade and investment today comes from people who benefited from former scholarship programmes. While some of the African graduates from Central and Eastern European educational institutions have taken up roles in business in their home countries, others serve in prominent political positions. These contacts can provide both a means of increasing knowledge of the destination countries, and entry points to business ventures. However, while the old scholarship programmes have proved useful, the alumni are ageing, and a fresh approach leading to the development of modern scholarship programmes, with some already under way, could prove useful in intensifying relations.
