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In defence of Germany’s Marshall Plan with Africa

It is almost 70 years after US Secretary of State, George Marshall, in a speech at Harvard University called for American assistance in rebuilding the economic infrastructure of Europe.

Germany, a recipient of the original Marshall Plan, has unveiled a ‘Marshall Plan with Africa’. The Marshall Plan or European Recovery Programme is credited with restoring Western Europe’s agricultural and industrial productivity after World War II. It involved states in need of assistance joining the Organisation for European Economic Cooperation, outlining the assistance they required and deciding how it was to be divided. The US, in turn, provided economic and technical assistance of almost US$13bn (at the time) for a limited period of four years.

Germany’s Marshall Plan comes after years and numerous calls for a Marshall Plan to help developing countries. In 1990, former vice president Al Gore and legislators from 42 countries, called for a global Marshall Plan under which industrial nations would help developing countries grow economically, while protecting the environment.

According to a 2007 Financial Times opinion, a Marshall Plan for Africa should not be seen as a grand aid programme. Rather it should be a means to use the power of business to ignite growth and reduce poverty, requiring a different set of institutions than the current aid system. Trade, greater investment and better development assistance are necessary.

Germany’s use of funds from the original Marshall Plan fund teaches a powerful story of how aid can be used to propel the private sector as a growth engine for development. The majority of the funds Germany received at the time, went towards rebuilding industry. Companies were given the funds and were required to pay it back to the government. The repayments were used to assist more companies, industries and build economic infrastructure.

Germany’s plan for Africa is evolving at a time when Europe is facing an unprecedented migration crisis. The hope is that by forging a new dimension of cooperation with Africa, which helps Africa achieve a level of peace and prosperity, migration from Africa to Europe will be greatly reduced. So what is the Marshall Plan with Africa and what can it accomplish for Africa?

Marshall Plan with Africa

The Marshall Plan with Africa is a 34-page draft released by the German Ministry for Economic Cooperation and Development (BMZ). It is a concerted effort of a new dimension for cooperation and increased investment that would benefit both Europe and Africa. With the plan, Germany seeks to present a European offer of support to Africans in promoting the development of a new dimension. The German plan aims to see a prosperous and peaceful Africa, with development benefits for all powered by Africans. It wants ‘African solutions to African challenges’.

The Marshall Plan rests on three pillars – economic activity, trade and employment; peace, security and stability; and democracy, the rule of law, and human rights. The inspiration for the three pillars comes from Aspirations 1,3 and 4 of the African Union Agenda 2063. Aspiration 1, 3 and 4 relates to a prosperous Africa based on inclusive growth and sustainable development; good governance, democracy, respect for human rights, justice and the rule of law; and a peaceful and secure Africa respectively. The basis for the Marshall Plan is food security, environmental protection, energy and infrastructure and health, education and social protection. It will focus on support for girls and women, as well as strengthen education and training for youths.

What the Marshall Plan can accomplish

The Marshall Plan creates awareness of Africa’s challenges and steps towards solutions. What is lacking are actual goals and time frames towards the achievement of the plan. However, the Marshall Plan gives a clear indication of Germany’s approach towards Africa’s development based on cooperation in areas including fair trade, investment, job creation and youth employment. Germany’s capabilities and potential benefits from cooperation in these areas are identified below.

Fair Trade: Fair Trade “contributes to sustainable development by offering better trading conditions to, and securing the rights of, disadvantaged producers and workers – especially in the South”. Germany, a key market in Fair Trade products, can impact Fair Trade in African countries exporting products such as coffee, tea and flowers. In 2013, out of €654m in sales, €95m directly benefited producer countries in items such as banana, coffee and roses. Kenya has 6% of the flower export market to countries like Germany, US, UK and Netherlands, with consumption market shares of 19%, 17%, 16% and 13% respectively .

Germany’s new dimension of cooperation with Africa in the area of Fair Trade can be seen from plans to expand the Fair Trade Access Fund launched by KfW development bank and other partners to cover activities in Africa. In 2013-2014, the fund granted loans worth $16.7m to 18 Fair Trade organisations in Latin America. The Fair Trade Access Fund is an innovative investment fund offering long term loans, trade finance loans and working capital loans to smallholder farmers.

It is vital to ensure that Fair Trade in Africa continues to improve the lives of the poor by providing higher prices, greater access to credit, and promoting environmentally friendly practices. One way this can happen is to ensure continued duty free access to Fair Trade products. For example, Kenya’s preferential market access to the EU may be threatened by the failure of some members of the East African Community to sign the Economic Partnership Agreement between the two parties. Overall, Fair Trade, although growing, is still a small niche market with debates about its long term viability and impact. There is therefore the need to look beyond Fair Trade.

Investments, jobs and youth employment: African countries receive a mere 5% of global foreign investment flows. Germany, the originator of the Marshall Plan, currently has only about 1,000 German companies with investment operations in Africa. This is comparable to over 3,700 German firms present in the US. Reasons for the low investment in Africa include an inadequate business environment, poor governance, security challenges, corruption and excessive red tape. However, Africa is making progress in addressing these issues. Since 2010, there has been a general improvement in the business climate in sub-Saharan Africa.

Despite the challenges of investing in Africa, the continent holds many opportunities for German companies. To promote German investment, perhaps an adaptation of the German Centres mostly found in Asia could prove useful. The centres, established by German banks and located in Beijing, Delhi, Jakarta, Mexico, Moscow, Shanghai, Singapore and Taicang, have enhanced German company presence in the respective regions. The German Centre started with a building in Singapore and stemmed from a message of the late Lee Kuan Yew – first prime minister and founding father of Singapore – that it would be a tragic mistake for European industrialists to forget the growing markets in South East Asia. Currently, the German Centre in Singapore has over 140 German tenants, particularly small and medium enterprises from a varied range of industries.

Africa needs $93bn per annum to address infrastructure deficits alone and $600bn to implement the UN Sustainability Development Goals. A crucial aspect of the Marshall Plan is the need to mobilise the private sector in Africa to achieve development. German official development assistance (ODA) to Africa, albeit small, could help generate some of the much needed funds in Africa. Germany’s ODA in 2014-2015 was $16,566.2m and $17,940.2m, respectively. In sub-Saharan Africa, South Africa was the top recipient of German ODA funds, ranked ninth with $283m. A new cooperation dimension is the use of ODA funds to leverage private investment. This can come in the form of funds that will reduce investments risks, thereby attracting more investors. ODA funds can also be used to guarantee instruments for protecting private investments. The Development Co-operation Report 2016 talks of new investment models such as blended finance, which can use public funds to provide de-risking instruments for private sectors to improve the scale of investments.

The Marshall Plan’s central question is: ‘How can 20 million jobs be created that give young people prospects for their future without destroying the environment?’. To achieve this outcome, Germany seeks to, amongst others, launch an alliance for jobs and vocational training for Africa’s youth, in partnership with its private sector and international partners, create investment incentives for German companies, and use ODA to mobilise private capital to boost employment.

With collaborative partners, Germany would be able to deliver on its three-pronged approach of education, training and employment. Tony Elumelu, an influential Nigerian entrepreneur, wants to collaborate with the German government through his foundation, which supports entrepreneurship in Africa. Germany’s proficiency in vocational training and expertise will benefit Africa. Germany has been instrumental in the training of over 2,000 people through the Agricultural Technical Vocational Education and Training project commissioned by BMZ in some African countries. The country’s dual education system, which combines apprenticeship with formal schooling for the young, is much admired and seen as one of the reasons for low German youth unemployment rates.

Conclusion

Germany’s Marshall Plan is remarkably different from the original Marshall Plan. The Marshall Plan with Africa will require much more than German initiatives to be successful. Nevertheless, the plan, which seeks to mobilise the private sector through aid, investment and trade, can with careful strategy and implementation achieve a number of outcomes in solving Africa’s many challenges.

Commenting on Germany’s plan at Davos in 2017, Akinwumi Adesina, president of the African Development Bank, highlighted the significance of the plan for addressing youth unemployment, the alleviation of poverty and women empowerment. By focusing on areas of Germany’s expertise such as education, training, employment, research and harnessing the power of the public and private sector, both in Africa and elsewhere to propel growth on the African continent, Germany’s Marshall plan can accomplish much. Needless to say, all these will only be possible with Africa’s mandate and forceful collaboration.

The author, Dr Adefolake Adeyeye, is a Research Fellow of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. Dr Adeyeye can be reached at [email protected].

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