Author: Michaël Tanchum
Affiliated organization: European council on foreign relations
Site of publication: European Council on Foreign relations
Type of publication: Policy Brief
Date of publication: January 19th, 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 per cent 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
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 nearshoring – shortening supply chains to bring them closer to intended end markets. This interest has only increased in the time since.
Africa’s and Europe’s economic relationship
New and enhanced global economic engagement with Africa in the last decade led to unprecedentedly high growth rates in several sub-Saharan African countries. Dubbed Africa’s “lion economies”, these nations consistently experienced economic growth rates of more than 6 per cent. But, while Europe has hesitated, other powers have stepped in to assume technological and commercial leadership roles – and have strengthened their political ties with African countries in the process. For example, almost half of the Chinese companies operating in Africa during the past decade have introduced a new product or service to the local market, while more than one-third have introduced a new technology.
Turkey’s economic activism in Africa
Turkey’s development of commercial architecture in the central Maghreb and west Africa is an illustrative example of a significant state actor’s increasing involvement in the African economy. By establishing steel and textile manufacturing in Algeria, Turkey has become that country’s largest foreign employer, undercutting the political influence of France and Italy. Turkey and its close partner, Qatar – which also opened a steel plant in Algeria – now dominate the country’s steel industry. Within the same time frame, Turkey opened Africa’s largest textile production plant – also in Algeria. And, following this success, Turkey has established a steel plant and a furniture factory in Senegal, to serve the rapidly growing consumer markets there and in other parts of west Africa. Turkey’s Senegalese furniture factory can benefit from other Turkish plants in both Senegal and Algeria, which service its need for fabric, coil, and other metal inputs for cost-effective, vertically integrated manufacturing.
Sub-Saharan Africa’s green energy innovation ecosystems
There are clear reasons for this interest in sub-Saharan Africa. One increasingly important factor has been the unprecedented growth in consumer markets that states and citizens in the region spurred through the early adoption of mobile banking and related digital finance services. These sectors have been a major driver of African consumer purchases: in 2019, mobile technologies and services in sub-Saharan Africa generated $155 billion of economic value added, or 9 per cent of the region’s GDP. The sector is projected to grow by 18.7 per cent by 2024, to $184 billion.
European firms are playing some role in these industries, but are yet to achieve their full potential. They risk leaving companies from other states, such as China, with much more significant sway over these sectors’ future development – and potentially in political relationships with governments in the region.
In 2019 there were 447 million unique mobile device subscribers in sub-Saharan Africa – 45 per cent of people in the region. While 50 per cent of subscribers in the region use smartphones, the GSM Association (GSMA) anticipates the smartphone adoption rate will reach 65 per cent, or 678 million users, by 2025.
Europe’s market position in Africa’s next generation, green energy innovation ecosystems will be influenced by the level of European firms’ participation in sub-Saharan Africa’s transition to full 4G and 5G coverage. If Europeans are not involved in Africa’s 4G and 5G rollouts, it will be harder for their companies to be part of other sectors in Africa’s innovation ecosystems. Therefore, both European and African businesses have an interest in increasing African solar power generation to meet the additional energy demand these networks require.
European companies’ role
The early 5G rollouts undertaken in 2020 and 2021 demonstrate that network vendors already participating in Africa’s cross-industry ecosystems have a competitive advantage in the market. The first 5G networks in sub-Saharan Africa were launched in South Africa in 2020 by Vodacom and MTN. Vodacom, which is majority-owned by the British-based Vodafone, used Nokia 5G technology while MTN used Huawei technology. In March 2021, Kenya became the second African country to launch 5G for public use; this was developed by Safaricom using Nokia network technology as well as Huawei network technology.
This is a key area in which European firms from different sectors can engage in joint activity with their African partners. Europe’s current position in Africa is also limited by the lack of coordination between European network vendors Ericsson and Nokia and French telecoms giant Orange, which has 130 million subscribers in Africa – meaning that one in every ten Africans is an Orange customer. Ericsson and Nokia are the only European vendors present in Africa, but they are not making a significant investment in infrastructure there. While Orange is surging ahead, Nokia and Ericsson are not following suit. Meanwhile, Orange is only working with non-European companies.
The early 5G rollouts undertaken in 2020 and 2021 demonstrate that network vendors already participating in Africa’s cross-industry ecosystems have a competitive advantage in the market. The first 5G networks in sub-Saharan Africa were launched in South Africa in 2020 by Vodacom and MTN
Through its Africa and Middle East division, Orange serves more countries in Africa than it does in Europe. In 2020 the division earned €5.8 billion in revenue. To maintain its market position, Orange invests €1 billion annually in Africa and the Middle East in the construction of cables and network upgrades. This includes the construction of the first pan-west African network and the extension of the 7,000km Portugal-Ghana-Nigeria MainOne submarine cable to Senegal and Côte d’Ivoire. This will support digital innovation in numerous sectors. Orange views this capital expenditure as necessary for maintaining its market share in Africa. On MainOne, Orange Africa and Middle East CEO Alioune Ndiaye explained that: “[a]s barriers to access continue to fall with improved networks and more affordable equipment, Orange, as part of its multi-service strategy, is seeking to position itself as an important partner in the continent’s digital transformation.”
Mobile banking and solar power
The spread of ICT that can sustain mobile networks with greater capacity and geographical coverage has helped drive the development of other industries, including mobile banking. Increased local solar power generation has, in turn, been facilitated by the greater mobile network access and consequent ability of online financial services to create consumer markets by extending credit to those previously without access. Examples from across the continent demonstrate this dynamic situation.
If African and European partners can together harness the synergy between solar energy and consumer mobile banking enabled by enhanced network coverage, they can also empower enterprises that promote wider social and economic development. This is evident with Swedish water purification start-up Wayout International, which is supported by Ericsson and Norwegian telecoms firm Telenor. Wayout International makes micro-purification modules that can produce drinking water for up to 300 households each day, reducing both CO2 emissions and the need for plastic bottles. The system is affordable for communities because customers use the service on a PAYG subscription through a mobile app.
If African and European partners can together harness the synergy between solar energy and consumer mobile banking enabled by enhanced network coverage, they can also empower enterprises that promote wider social and economic development
Telenor has no direct operations in Africa, but its internet of things subsidiary Telenor Connexion is providing network solutions, including SIM cards and full cellular internet of things connectivity management services. Ericsson’s internet of things accelerator is providing funding for, and expertise on how to securely operate, the system on standardised worldwide mobile network infrastructure. The system’s pilot project has been successfully operating in Uganda, producing 70,000 litres of pure drinking water every month and selling at competitive prices to 22,000 customers. The system is now set to expand to nine other sub-Saharan African countries.
Around half of mobile money accounts worldwide belong to consumers based in sub-Saharan Africa. And the region is on track to see the fastest growth in mobile money anywhere in the world through to 2025. An estimated 700 new data centres are needed to meet the continent’s growing demand for data storage and thereby support other digital activity.
This will likely require 1,000MW of additional installed power generation capacity. Recently opened private data centres in Nigeria and Kenya consume 10MW and 18.9MW respectively. Heavy data centre investments will be required in South Africa, Kenya, Nigeria, and Ghana – and, to some extent, in other countries with expanding ecosystems, such as Côte d’Ivoire and Uganda. The new trend of establishing co-location campuses – very large data centres – will also increase demand for power, with one Kenya-based co-location campus project slated to consume 42.5MW. This considerable rise in energy demand lends added urgency to the adoption of solar power, providing further opportunities for European firms to partner with African enterprises.
Around half of mobile money accounts worldwide belong to consumers based in sub-Saharan Africa. And the region is on track to see the fastest growth in mobile money anywhere in the world through to 2025. An estimated 700 new data centres are needed to meet the continent’s growing demand for data storage and thereby support other digital activity
The case of Senegal’s €70m national data centre provides a cautionary tale in this regard. In June 2021, Senegal’s president, Macky Sall, inaugurated the data centre, declaring that “[w]e have to rapidly repatriate all national data hosted out of the country.” Sall ordered his government “to migrate all state data and platforms to the data centre”. However, this “national” data centre was built by Huawei and financed by a Chinese loan – calling into question the efficacy of Senegal’s exercise of secure and sovereign control over its data. Once the data centre becomes operational in early 2022, Chinese technology will dominate practically of all of Senegal’s cyber infrastructure.
As the lion economies of Africa began to roar in the mid-2010s, global automakers began turning their attention towards sub-Saharan Africa. This led Bloomberg News in 2015 to describe sub-Saharan Africa as the “last frontier for car makers on the hunt for growth.” Since then, there has emerged an even firmer global industry consensus on the prospects of the region’s car market. “The question on Africa isn’t, ‘is it a market of the future?’” – Nissan’s managing director for Africa operations explained in a 2019 interview – “it’s a case of when.”
However, Europeans are currently failing to work with local firms in the same way as their rivals from China and South Korea are (to name just two countries). The EU and EU-based companies have not engaged with local African manufacturers in joint ventures. Therefore, Europeans risk missing out on a vital form of engagement.
Green energy innovation ecosystems and Europe’s global priorities in Africa
The emergence of markets and industries with digital financial platforms has created successful new development models across sub-Saharan Africa. The expansion of such platforms and mobile networks has increased the generation of, and access to, solar power – which also supports sub-Saharan Africa’s energy transition and efforts to counter climate change. The evidence suggests that European investment in joint-venture, value-added production in the region will succeed if it takes place in cooperation with local innovation ecosystems. To make this a reality, the EU and EU members of the G7 will need to align their strategies with this priority.
The EU’s climate and connectivity agendas are at different stages of development. Its climate policy is more advanced than its approach to global connectivity. More broadly, the EU plays a relatively dominant role in European climate action, while European responses to the BRI are developing via two parallel initiatives: one led by the EU; the other driven by the G7. However, overall, the EU is now assembling the strategies and policies it needs to support the green transition in sub-Saharan Africa – and it is giving them some financial heft.
Reframing European climate policy to support Africa’s economic development
To succeed in this challenge, Europeans need to establish a clear priority for their climate policy. Their first step should be to consider the current image of European climate action in Africa – and, consequently, to work to reframe what they are offering.To create the strategic underpinning for a positive agenda, the EU should start by acknowledging that the greatest contribution it can make to sub-Saharan Africa – and that, in turn, the region can make to global climate objectives – is to ensure that the next stage of Africa’s economic development is green. This would account for the fact that Africa’s historical contribution to global cumulative carbon emissions is a mere 3 per cent, and that precipitous changes to European climate policy risk harming its economic growth – which is already struggling under the shocks of the health crisis, supply chain disruptions, and inflationary pressure caused by the pandemic. European policymakers should show that they understand that sub-Saharan Africa faces enormous hurdles to achieving growth while decarbonising. Accordingly, they should position Europe’s climate foreign policy as the pre-eminent tool for achieving these objectives. This would simultaneously address the perception that European climate policies would harm Africa’s economic development and that European policymakers are blind to Africa’s needs.
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 programmes 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 mobilise financing in Africa to the tune of €29.18 billion.
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.
This paper has shown that 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 decarbonising the global economy while holding its own geopolitically vis-à-vis major powers such as China.
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