Evaluating the Africa-EU Partnership

Serena Clarke // 18 December 2019

European companies, especially in the construction sector, have long complained that Chinese official credit lines make them less competitive by comparison in African countries. It was partly for this reason that, in his State of the Union Address in September 2018, President Jean-Claude Juncker proposed to deepen the EU’s economic and trade relationship with Africa through a new Alliance for Sustainable Investment and Jobs.

The Alliance contributes to the Joint Africa-EU Strategy, which was first adopted at the 2007 Africa-EU Summit in Lisbon. Its main aim is to bring continents closer together by pursuing a free trade deal and creating a greater role for the private sector via initiatives such as the European External Investment Plan and ongoing student exchanges.  The EU hopes this will boost job creation in Africa by up to 10 million in the next 5 years, while supporting education and skills that will benefit European and African people alike.

The plan comes after China announced $60 billion in financing for Africa through grants, credit lines, and the purchase of African imports. In fact, between 2016 and 2018, its total FDI outflows to African countries were 12% greater than the combined figure for the EU. With a new alliance agreement between Europe and Africa, the business sector is confident that the playing field can be levelled, and this will contribute to the economic agenda of the Partnership.

However, if Europe cannot match China in terms of investment quantity, then what can it offer to Africa?

On the Commission’s side, there is a belief that European investment is of superior quality to Chinese or Russian, for its potential to create jobs and stimulate exports. Whilst €40 billion is proposed for the 2021-27 EU Budgetary period it is the private sector that holds the largest potential for generating jobs and growth. It is therefore essential to boost responsible private investments — both domestic and foreign — in Africa.

The Commission also recently adopted a set of projects in support of African economic integration. The initiatives, worth €101.5 million, focus on property rights and improving the investment climate in Africa. For smaller countries like Gambia, this would make it easier to do business within the continent, as well as lowering the prices of goods and services produced there.

In contrast, Chinese finance in Africa has been criticised for saddling governments with unsustainable debt and for focussing on infrastructure at the expense of job-creating opportunities. This is due to China’s policy of employing their own labour for its infrastructure projects in Africa. The result of this is more than 200,000 Chinese citizens working on contracts across Africa as part of its One Belt One Road Initiative.

The main reason the African market is a desirable continent for investment is its rapid growth, with the population predicted to reach three billion people by the end of the century. Whilst the EU is currently Africa’s main trade partner for goods, further promotion of intra-Africa trade will prevent the next four largest partners China, India, the United States and the United ArabEmirates from dominating the scene.

One of the pillars of the Africa-Europe Alliance, the African Continental Free Trade Area (ACFtA), aims to deepen this economic integration. It will do this by providing a single continental market for goods and services, with free movement of people and investments. The aim is to boost Intra-Africa trade from an existing level of about 13% to 25% or more over the next decade, thus contributing to economic growth and attracting investments from both within Africa and the world.

Trade is an important indicator of Europe’s prosperity and place in the world therefore increased trade relations within Africa will ensure that the EU remains the biggest player on the global trading scene. A prosperous Africa would also provide new opportunities for capital, cheaper imports, and a ready supply of skilled, new workers for Member States.

However, such an investment does not come without risks, as much of the lending goes to under-served entrepreneurs in sub-Saharan Africa, many of whom have been forced to flee their homes and lack sufficient property rights. What is more, the 23 signatory countries to the African Continental Free Trade Agreement (AfCFTA) have set out to establish the world’s biggest free trade zone. However, considering each country has different national laws, standards and regulations, there will be many challenges involved in trading goods and services without strict border controls.

In fact, Africa’s top economies of South Africa and Nigeria have chosen to boycott the free trade agreement. Other critics such as Togoan economist, Yves Ekue Amaizo, argue the deal could lead to price-dumping: “If cheaper products from abroad flood the market, Nigerian farmers will have nobody to sell to and could potentially lose their jobs.”

Some argue that free trade must develop overtime. After all, the inner European market didn’t develop overnight. Whilst many Africans welcome the idea of having access to investment funds and reduced transaction costs, they also recognize that many of the conditions for a free trade zone have not yet been met. It needs an administrative body which regulates trade. A firmer hold on democracy, the rule of law and property rights would also help and are considered necessary for the proper functioning of African economies and the creation of quality jobs.

Despite this, it is clear that the Africa-EU alliance would be beneficial to both parties, giving the EU the chance to counteract increased geo-economic competition in Africa whilst simultaneously offering a path for development in the continent through an equal trade partnership.

With that said, it is important to remember that the participation of EU countries in the continent’s infrastructure modernisation effort is considered to be in addition, not a substitute, to that of other powers, notably China.

Europe should, therefore, offer Africa an alliance that goes beyond a simple financier-borrower relationship by promoting an agenda of democracy, development and increased rule of law, which sets it apart from other actors engaging with the region.

EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).