Why a joint German-American investment fund for Africa would solve several global challenges and would be a strong impulse for the German-American partnership
In April 1948, three years after WWII, the US Congress adopted a law that changed the world significantly: the European Recovery Plan (ERP). The commonly name used for this plan is deduced from its initiator and most important advocate, the General of the Army and Secretary of State, George Marshall. In the late 1940s, Europe has been destroyed economically, politically and socially. The continent needed impulses from outside to break “the vicious circle and [to restore] the confidence of the European people in the economic future of their own countries” as Marshall expressed in a speech at Harvard University in 1947. The plan followed the goals of promoting the economies, restore and maintain the currencies, budgets and finances and stimulate growth of international trade. An unexpected period of peace, sustainable growth and the emergence of a German-American friendship have been the result.
In consideration of the status of the world economy today, a comprehensive German-American investment fund for the development of Africa could be the right action to tackle several multidimensional problems in Africa and to give a new impulse to the German-American partnership.
Africa has immense problems to reduce its economic and political difficulties and could benefit, as Europe did after WWII, from a powerful support from outside. According to the IMF, Africa as a continent had a GDP of 2.18 bn USD in 2016. As a comparison, Germany had a GDP of 3.47 bn USD and the United States 18.57 bn USD. The continent is afflicted by wars, famines, natural catastrophes, terrorism and the resulting challenges of migration. Against the background of the change of climatic conditions and demographic changes (population is forecasted to double until 2050), these problems could even aggravate in the coming decades.
One could wonder why these issues are of importance in conjunction with the German-American partnership today. By having a look on the economic challenges of these countries, however, a direct focus on the African continent could be of an underrated value.
Africa with an area of 30.2 m km² (Germany 0.35 m km², USA 9.83 m km²) and a share of 16.3 percent of the global population has enormous growth potentials. The abundance of resources and free land has long been an obstacle (c.f. the resource curse) due to existing economic interest by the West and political problems within the African countries. The economic interests are, however, about to change or have already changed as the global economic and political framework of the 21st century is significantly different from past. The saturation of Western markets, the rise of China and India, the ongoing migration from and within Africa caused by war, terror and severe economic conditions and the challenges triggered by climate change should draw our attention on new approaches.
Economic growth in Africa could give the continent the possibility to improve the conditions of the population, could decrease the incentives for migration and could create new strong markets as a basement for impulses for international trade. The saturated markets in the Western world and especially the highly open economies of Germany and the United States need stable and developed economies to increase trade. If the West is not going to invest in the African continent and give the African countries the possibility to develop in a sustainable and stable way according their own strategies, other global players could fill the gap and follow their own strategies.
Germany has launched their version of a “Marshall-Plan” in January 2017. The German government published an initiative to increase cooperation and to decrease hunger and migration. The plan consists of three columns: Economic activity, trade and employment; Peace and security; Democracy and the rule of law. The initiative is an important starting point, but it is a matter of course, that the investments of a single country are just a drop in the ocean. If Germany does not get a significant number of partners, the investments will hardly have an impact. According to the African Union, Africa needs investments of around 360 bn USD until 2040, which exceeds the financial possibility of one single country. The AU has already initiated important steps by their own, with for instance the Agenda 2063 or NEPAD. Germany and the USA should appreciate these developments and support new approaches.
A joint investment fund with the shared power of the German and the American economies and endowed with clearly more capital could make the well-intentioned initiative of the German government a successful plan, which could change the world. Sending money without a clear structure and well-defined rules would not have a sustainable success though. A joint fund should orientate itself on the framework of the European pendant of 1948 and include specific commitments regarding the fulfillment of major production programs, a guaranteed reduction of trade barriers and the establishment of an international organization to coordinate the fund. In real value of 2017, the ERP had a volume of around 140 bn USD. A joint investment fund set of by Germany and the USA followed by several countries could pave the road to success.
In November 2017, the EU and Africa will meet for the fifth Africa-EU summit in Abidjan. This could be the perfect moment for the US and Germany to proclaim a joint initiative for Africa to set a good example for other European countries. The proclamation would be a superb demonstration of the actionability and will of the German-American partnership.
After the ERP, Marshall has been awarded the Nobel Peace Prize and later the Charlemagne Prize for his contributions to welfare and peace in Europe. Without his initiative, Europe could never have developed economically and grown together in such a short time. Today, the German-American partnership could seize the opportunity to start a Marshall-Plan again to create a wealthier and more stable Africa. Let’s force Africa to grow.
Raphael,
Really interesting piece on taking up a transatlantic strategy to develop Africa. Addresing the challenges encountered by the continent would also make US and Europe more secure at home. How would you address aid fatigue or the lack of political will from the US and Europe to support this plan as oppose to just investing in our own nations? Also, what is the role of China, that gives unrestricted investments, while western nations often have strings attached to aid and investments?
Hey Phebe,
Thank you very much for your answer and your kind feedback. Aid fatigue is indeed a crucial challenge. In my opinion it is, however, fundamentally to understand that investments in Africa is not only about aid. It is about creating markets for future trade. The US and the EU should change their perspective and understand that economic development is also in their own interest.
Concerning China, you are mentioning another important point. How WE should deal with restrictions and ethical rules is one part of the discussion. The other part is, how long we should stay calm and let the Chinese continue without own engagement.
What is you position on these questions?
Best,
Raphael
Raphael, I think you have a very good article here! You raise an important point, particularly about how we in the transatlantic community need to understand the immense benefit that investing in Africa would bring! The one concern I have is what you bring up in relation to Phebe. Since 1945, the U.S. and the E.U. has been committed to being global leaders, but specifically “morally good” global leaders. So how do we rationalize the inevitable in Africa – investing in countries where the governments can often be corrupt and prone to taking advantage of its people? Do we have a responsibility to address those problems (even if it is at the expense of our investments), or rather take the Chinese approach of remaining morally neutral and intervening as far as it takes to do the bare minimum in order to ensure the security of our investments? I find this to be a critical question, and the first issue to address in relation to investing on the African continent. Do you agree?
Hi Thomas,
thanks for you comment. I do totally agree, that a fund or an institution should define an ethical framework for development and trade. Concerning the US and the EU to be “morally good” global leaders, I have some difficulties to agree. First, there have been several moments in the last decades in which the US and the EU violated international law and common moral rules. Second, I think that Western cultures and countries are wrong in assuming that China is not acting morally and is just following despicable economic self interests. I think we are opening a very important but difficult discussion here. As I have a background in philosophy, I am convinced that we should confront ourselves with this discussion. For now, the observance of the rules set up by the WTO and the UNCTAD would be more than a good starting point. What is your opinion that?
Best
Raphael
Hi Raphael, thanks for your comment here. As regards the “morally good” U.S. and E.U. – I have no doubts that both parties do not always follow the ethical path. To clarify, perhaps it is best to say that the West is more prone to interference in the name of “humanitarian responsibilities.” Whether the West’s interference is truly for that reason is certainly up to debate. As regards China, I think Africa is a perfect example in exploring your point – as they’ve become very involved on the continent (particularly in South Sudan: http://foreignpolicy.com/2014/04/24/chinas-african-adventure/). The question is, how much is their involvement about protecting their investments versus caring for the African people? For instance, in South Sudan – would they be showing the same sort of initiative if the violence ceased while government corruption and crime continued? I do not think so, and I do not think they’d have anyone to answer to regarding that in Beijing (as long as the investments were protected). And better yet, how would the West respond to that? I think it would be harder for the West (I am not saying they would not be able to justify it, just it would be more difficult and there would be more people to answer to). What do you think? To conclude, I agree that the rules by the WTO and the UNCTAD are a good baseline – but I do not think they provide any sort of moral guide. As you say, a very difficult discussion (and even harder to not be having it in person haha)!
Raphael,
Thank you for your insightful article. From your comment: “It is about creating markets for future trade. The US and the EU should change their perspective and understand that economic development is also in their own interest.” As you mention, how do you propose to reassure investors that the money will not fall victim to “afflicted by wars, famines, natural catastrophes, terrorism and the resulting challenges of migration?” In creating these markets, it is important to address how stability will factor into such a plan.
Great Article!
Brandy
Hi Brandy,
you are of course more than right to underline again the stability issue. For me it was important to bring out, that the current German initiative is a drop in the ocean. One country is not able to change anything. A German-American fund should concentrate on single countries and single projects, monitored by an international institution.
Now we have either the choice to go on like we have done in the last decades and hold off investments, or start to launch a serious initative. Whatever decision we will take, it will get more expensive in the future for us and China won’t stop their investments.
What about your opinion?
Best
Raphael
Raphael,
You are correct that to be successful it will require more than the investment from one country to match China’s level of engagement. I also agree it is futile for Western governments to continue on the same path as before. While many people (myself included) have questioned such large scale investments, there are certainly regions on the continent that are prospering and already showing great growth. Perhaps, we should seek to invest financially in these thriving cities and countries with the intent of success naturally spreading to the surrounding areas. Historically, I believe the US and Europe have set conditions on investment and aid, which China has not implemented. This has allowed for Chinas rapid growth of influence on the continent.
There is a strong possibility that a US/European based Marshall aid type plan can be used to strengthen institutions and rule of law on the African continent, taking into consideration well established traditions and regional culture.
Thanks for the dialogue!
Brandy
I’d echo some of the thoughts above and just note the importance of *institutions* for development and promising commercial ties together. Before we create a fund or seek to invest billions, one needs to consider how to improve rule-of-law-institutions in a culturally sensitive way (no one wants imperialism). Otherwise, the investments will likely only make things worse in terms of economic development.
Hi Marc,
you are more than right. I am convinced that such a fund could have a positive impact in only a few countries. West African states (e.g. Ghana and Ivory Cost) are currenty suffering immense by the plunge of the cocoa price. Without financial aid, investments for the comming harvests will be badly missed. Both states are generally in good conditions and could make a sustainable use of FDIs. For other East African countries I agree, investments in countries without a stable government you would only make things worse.
Best
Raphael
Raphael,
While I agree with the intention of your proposal, I have to vehemently disagree with the premise on its face. The creating of a joint fund to better the lives of a people is noble, but aren’t there other solutions that don’t involve directly meddling in Africa’s economic affairs (again)?
Taking a step back to think pragmatically: how do you convince any African nation that this isn’t simply an effort to resurrect a new form of an imperialist structure that no one wants to see? Additionally, in the diverse ecosystem that are the challenges across the continent, where do you start? How would this fund operate differently from the IMF or World Bank? Why would domestic legislators/citizens support this? And, specifically for the US, how would this effort be a better bet than say investing more in Latin America which may hold more strategic value?
Again, this is not a knock on your entire proposal. I agree with the sentiment that working to correct some historic wrongs against African nations will help to bring about a more just, prosperous and stable world. However, used simply as a backdrop for deepening transatlantic ties could, as a function of the joint funds mere existence, create more problems than it solves. Here’s the thing for me: the Marshall plan was equal parts benevolent, strategic and paradigm shifting but this plan feels like it’s only strategic.
Hi Raphael,
I have to agree with Julian’s comment above. While I am all for giving the African continent a chance to fully develop its economic potential without the interference of European and American power, this proposal could sound like imperalism with a human face. I think one step that would help this idea tremendously would be to include the African people in the process. If we really want to better the economic situation in the continent as a whole we have to let the African citizen talk and the West, for once, has to just listen. Does this sound like something you envisoned?
Dear Raphael,
I couldn’t agree more with Julian’s comment! Especially, when he says we need to convince and cooperate with African people and leaders, not fall back into imperialist approaches. On this topic, I recently read an interview with Congo President Joseph Kabila in the “Spiegel” magazine, which also discussed the proposed Marshall Plan. Kabila, while not being a saint in his own country, raises a valid argument: “as for the Marshall Plan or whatever it is, I don’t believe in that. Africans have been fed this kind of language for the last 50 years. The West exploited Africa and now it wants to save it. We have been living with this hypocrisy for too long. Africa can only be saved by Africans. Why are we talking about a Marshall Plan now? It’s because you see a lot of immigrants moving into Europe.” (http://www.spiegel.de/international/world/spiegel-interview-with-congo-president-joseph-kabila-a-1150521.html )
It will be crucial to enable real cooperation and not force Western beliefs and economic models onto the African nations.
Hi Julian, hi Christin,
Thank you both for your honest and direct feedback. I somewhat expected these arguments as critics for my ideas and I have obviously to admit that I agree you. First of all I want to mention, that is of course an oversimplification to talk about “Africa” as a continent. Africa contains more than 50 sovereign countries which largly varying economic conditions. I wanted to use this simplification as well as the provocative idea of a parallelism to the Marshall plan to raise the attention on the importance of a change of the economic interests of the Western countries. The reason why I believe that neither the World Bank nor the IMF could effectively change significantly the economic conditions in most of the countries is that Western companies did and do not really have an economic interest in a sustainable development on a microperspective. A joint and public initiative could, however, have an impact in some countries. Concerning your argument, that any initative has to be done by or at least with the African people and African institutions, I can’t agree more. Although I unfortunately have not mentioned this point in my paper, I am totally convinced that it is of importance to include the people in any process made.
My argumentation in the paper could seem to be the initative of a new “imperalism with a human face”, you’re right. Though, the underlying motivation to write this article was my convintion, that the global impetus to really improve the economic conditions of African countries has been declining throughout the last decades. I think that an US-German partnership could give it a boost.
Development economics is one of the most difficult issues. All your arguments above are stating important points. Besides all fundamental challenges, I however can’t deviate from the argument that a trust in the current global framework won’t improve the situation in Africa. Doing nothing would be worse in the longterm. For Africa as well as for the West.
Hi Raphael, I like the “ripple effect” part of your idea. I agree that stabilising Africa would indirectly help US-EU relations mostly by reducing the unsustainable migration of people coming from the continent. What I am most curious about, however, is how your Marshall Plan for Africa would look different than the current aid projects being instituted there now? I ask, because I’ve previously lived and worked in a few sub-Saharan countries, most recently for the German Development Cooperation (GIZ) in Rwanda, and I saw a lot of money being spent without much impact to show for it. In your reply to Julian you say that a joint and public initiative could effect change where the IMF and World Bank do not. Can you elaborate on this?
Hi all,
I would like to thank you all again for all the comments on my paper. It is indeed a pity that we cannot discuss such an important and obviously stimulating topic in person. I would like to pick up the comments again and draw a quick conclusion.
Your main objection has been, that a (new) initiative should be clear on how it would differ from earlier initiatives, how it would be embedded in existing global development frameworks, how African citizens would be involved and how stability and investment protection would be established.
I confess that my answers to some of your comments might seem not to be sufficient. The amount of your answers and the quality of your objections and approvals however convince me, that I have stated an important topic that should gather even more importance in international dialogue than it already has.
Thank you all for your interest and engagement,
Raphael
Hello Raphael,
In response to your proposal, I wanted to share an article that I came across that may complement your research. While there is a risk of doing the same thing that has always been done, there are new factors that should be considered – if the US and EU do not agree to invest/support Africa, due to historic reasons and current sentiment, other powers may certainly fill the gap.
Good luck with your proposal and I couldn’t agree more that it would be a great opportunity to further discuss these ideas in person.
https://www.washingtonpost.com/world/africa/north-koreas-surprising-lucrative-relationship-with-africa/2017/07/10/c4e6f65d-30fe-4bd2-b178-d90daaac3007_story.html
Best,
Brandy