Gateway to Growth: How the European Green Deal Can Strengthen Africa’s and Europe’s Economies

Written by | Monday, January 24th, 2022

Economic and commercial relationships with Africa are set to play an ever-greater role in determining countries’ and blocs’ place in the global economic order. By 2025, Africa will have over 100 cities with more than one million inhabitants – more than three times the number in the European Union. By 2030, 42% of the world’s young people will live in Africa, making the continent home to the largest supply of affordable labour on the planet in the coming decades. And, with an extremely extensive supply of inexpensive and available land, Africa is already attracting international businesses looking for affordable manufacturing sites. Moreover, Africa is the fastest-growing end market for a widening range of products. This means it is increasingly not just a place that makes things to export, but is also home to important consumer markets that are underserved and set to rapidly expand. This trend will accelerate with the full implementation of the African Continental Free Trade Area, which launched in January 2021.

Much of this growth is being powered by the green energy innovation ecosystems that are emerging in sub-Saharan Africa; they are already defining the future trajectory of economic growth on the continent. These innovation ecosystems thrive by combining cutting-edge digital technologies and telecommunications with renewable energy technologies. They respond to Africa’s unique market needs – which include significant consumer demand for better digital connectivity – and they make use of the considerable green energy potential of the continent. These ecosystems are, by definition, a cross-industry phenomenon in which growth in one sector supports growth in another. Solar energy, electric vehicles, and telecommunications and information and communications technology (ICT) are all intimately interconnected. They synergize with one another to create a virtuous cycle of market expansion for each sector.

Africa has seen growth in these sectors thanks to their interconnectedness. For example, the expansion of digital financing platforms operating over mobile networks has enabled consumers to purchase off-grid solar power systems. The components needed for these systems are supplied by local solar panel manufacturing sectors. Access to affordable power has enabled the development of new commercial markets for other goods and services.
However, it is far from assured that Europe will play a primary role in the new commercial architecture emerging in Africa. Indeed, Europe’s global economic competitiveness is at risk. Now and in the coming years, international actors will be racing to establish new manufacturing value chains – a process that is shaping Africa’s economy and boosting those actors’ positions in the global economic order. Indeed, in the last decade, China overtook the EU to become Africa’s top trading partner, and India became the continent’s second-largest such partner. Turkey’s rate of growth in African trade surpassed the EU’s by a factor of five, while the Gulf Arab states similarly expanded their trade and investment relationships with Africa. Even prior to the outbreak of Covid-19, European, Gulf Arab, and Asian states showed a growing interest in near-shoring – shortening supply chains to bring them closer to intended end markets. This interest has only increased in the time since.

European companies in Africa are forced to compete with Chinese counterparts that have the advantage of formidable state backing. But, when it comes to successful investment partnerships in Africa, bigger does not always mean better. Chinese investments across the continent have not brought about a China-style economic boom in any African country. Europe could fill this gap by investing in the creation of large-scale, value-added production in sub-Saharan Africa. To do so, Europe needs to deploy its resources in a coordinated, strategic manner. The EU urgently needs to combine the foreign policy aspect of its European Green Deal with its nascent Global Gateway program, which is its answer to China’s Belt and Road Initiative (BRI).

Form should follow function. And the function needed is a unity of action among Europeans. Though this is a perennial challenge, European policymakers should acknowledge that a Europe that fails to be a whole greater than the sum of its parts will inevitably be eclipsed by China and other competitors. Sub-Saharan Africa’s economy is changing rapidly. Europeans have an opportunity to be part of this, and to help promote economic growth while strengthening geopolitical ties with governments and businesses across the continent. But, to achieve this, they will need to provide investment and other support that makes a real difference to Africa’s growth trajectory.

There is no shortage of ways in which the EU can better engage with this key agenda. For example, although the European Green Deal’s inward focus predominates, its “EU as a Global Leader” chapter contains many of the provisions needed for investment-driven engagement with green energy innovation ecosystems. Similarly, the EU’s “Towards a Comprehensive Strategy with Africa” may predate the European Green Deal, but it provides a sufficiently broad framework for the more specific programs and financing to flourish. Three of the strategy’s “five partnerships” are relevant: the green transition and energy access; digital transformation; and sustainable growth and jobs. In addition, the Global Gateway promises to focus on infrastructure investments and make use of the European Fund for Sustainable Development Plus – the financial arm of the EU’s External Investment Plan, which was approved in March 2021 to mobilize financing in Africa to the tune of €29.18 billion.

As it is difficult to secure extra EU public funds for such purposes, European policymakers should promote public-private partnerships in Africa as an important source of funding. Public-private partnerships have at times been dismissed in European civil society circles as government subsidies to the private sector that contravene free-market principles. But they are key to leveraging Europe’s full potential. Indeed, the European private sector’s investment in, and partnership with, African businesses will be a force multiplier for Europe. Public funds provided by EU member states and the EU will not be of the scale needed to transform Africa’s economies. European private sector actors can fill this gap. The EU should play a coordinating role to enable them to work together. European policymakers should consider the following points in these key areas of activity: Firstly, foster Europe-wide cooperation on investment in Africa; secondly, promote solar power; thirdly, participate in telecommunications upgrades; fourthly, promote electric vehicles; fifthly, provide support for data centers.

By developing a diversity of supply chains for key products, and by building stronger economic and political relationships with businesses and governments in sub-Saharan Africa, Europeans would achieve greater resilience in the emerging geopolitical competition with China. This would also reduce the benefits China could gain in its pursuit of similar goals.
A reformed European Green Deal can accelerate green energy development in sub-Saharan Africa. EU policymakers should consider merging the European Green Deal with the Global Gateway, and establishing new coordination mechanisms to drive investment. This revised approach can support investment in the expansion and upgrade of cellular networks, solar panel manufacturing, local electric vehicle production, and other new products and services driven by green energy innovation.

Some EU member states’ institutional interventions have excelled at enabling effective African-European partnerships. They have fostered cross-industry initiatives that use telecoms to develop new products and services. These initiatives should serve as models for EU-level engagement with European firms across national boundaries. Accompanied by a message that Europeans will lead the world in supporting sub-Saharan African economies as they move towards a greener future, the EU can help achieve the vital goals of decarbonizing the global economy while holding its own geopolitically vis-à-vis major powers such as China.

‘Gateway to Growth: How the European Green Deal Can Strengthen Africa’s and Europe’s Economies’ — Policy Brief by Michaël Tanchum — European Council on Foreign Relations / ECFR.

The Policy Brief can be downloaded here

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