“Europe needs to create a new ‘spice route’ through Africa to the markets of Asia”. That was what Martin Schoeller, managing director of the Schoeller Group, a diversified services company with a focus on sustainability, told me in a discussion on the need for greater European investment in Africa.
The claim is deliberately reminiscent of China’s ‘Belt and Road’ initiative. But Schoeller says that – as outlined in his book ‘Africa First’ co-authored with Daniel Schönwitz – Africa and Europe share a common destiny with enormous potential.
But it will take a well-thought-out combination of governments and the private sector to create an African future that encompasses European ideals of ‘compassionate capitalism’ that can be persuasive enough to counter the alternative path of authoritarianism and crony capitalism. But for Europe, if it does not succeed, it will be facing immense political challenges in the decades ahead.
In 1990, 40 African countries adopted the Washington Consensus, the IMF approach to restructuring their economies according to market economic supply-side principles to alleviate poverty. As the authors say: “the Washington Consensus has failed miserably in Africa”. The World Bank predicts global poverty will be increasingly an African phenomenon, rising from 55% in 2015 to, in 2030, almost nine out of 10 “extremely poor” people in the world living in central and southern Africa . It is in Europe’s own interests that it faces up to the challenges and the opportunities that Africa presents.
Stephen Smith, in his book ‘The Scramble for Europe’, says current demographic trends imply that, in 35 years’ time, there will be an estimated 450m people in Europe and 2.5bn in Africa. The UN’s latest data forecasts Africa’s population will hit 3.5bn by 2075. “Unimpeded immigration to Europe would give a further boost to populists, while even greater isolation would result in serious human rights violations. It is doubtful whether we would be capable of meeting this challenge,” say Schoeller and Schönwitz. They add: “This is why it is clear to us that only when the people of Africa are better off, that we Europeans can be better off in the long term as well. It is only when poverty and hunger in Africa are defeated that we can live out our European values and maintain the European social model.”
The world is now a new battle of ideologies, Schoeller argues, that are struggling to capture the soul of emerging markets. That battle is no longer that of communism versus the free world that America believed it was fighting for over half a century. It is, instead, between the liberal democratic European model, and the authoritarian models espoused by Xi Jinping’s China, Vladimir Putin’s Russia, Recep Tayyip Erdoğan’s Turkey and Mohammed bin Salman’s Saudi Arabia.
It is no surprise that countries see China’s tremendous success in alleviating poverty and attempt to understand what lessons they should take from it, when the US-espoused purely free-market approach has failed spectacularly in Africa. Schoeller, though, argues that what Africa needs is an adaptation of Germany’s and perhaps more generally what he refers to as Europe’s “social market economy”. He sees that as based on five pillars of social justice: protection against unemployment; health protection; education; safety; and a fair wage, enabling even an unskilled labourer to afford to maintain a family. This, Schoeller told me, is not just a matter of social justice, “it is solidarity”. Indeed, as the COVID-19 pandemic has shown, Europe cannot isolate itself from the world. It has no choice but to embrace the idea of solidarity.
Africa faces several interrelated challenges of low living standards, high birth rates, poor infrastructure and a lack of jobs. Schoeller and Schönwitz argue that “a significant increase in wages would be a decisive step towards halting population growth. For with higher average per capita income, the birth rate declines. And it is statistically proven that starting at about $250 to $300 per month, the birth rates approach the equilibrium of two children per woman.”
As they add, it would be a huge step towards reducing poverty and population growth if minimum wages were to reach just one-tenth of the European level and to achieve this, current wages in sub-Saharan Africa must increase tenfold. “This growth can be attained organically with a growth rate of 15% a year within 15 years or even faster.” That requires a modern infrastructure which is the basis for an industrial and social policy that leads to higher wages.
Schoeller and Schönwitz argue that, although infrastructure is one of the expressly stated priorities of political decision-makers in Africa, most African countries invest too little in roads, railroads, power lines, water pipes, digital networks and other infrastructure projects. The African Development Bank estimates that the continent needs to invest $130bn-170bn a year in infrastructure. Their analysis estimates a financing gap of $68bn-108bn.
Schoeller puts it another way “Africa needs $1trn for infrastructure”. That may sound a lot, but he argues that it is comparable in magnitude to what the Federal Republic of Germany spent on integrating eastern Germany in the 1990s. It is also less than the amounts being spent on tackling the COVID-19 pandemic. It amounts, says Schoeller, to just $1,000 a person. “With just $1,000 a person, you can change the destiny of Africa. In Europe, you would need $100,000 a person to do that.”
Their book, Schoeller explains, is aimed at both political institutions such as the European Commission and regional politicians as well as businesses and investors. Investment in African infrastructure through European public sector support has to happen in parallel with the private sector.
Can Europe succeed in such an approach of combining public sector investment in infrastructure through long-term loans at subsidised interest rates combined with active private sector investment? Schoeller and Schönwitz argue that Europe has three powerful tools at its disposal to demand and promote reform, and to export the social market economy to Africa – finance, development aid and trade. They argue that with intelligent financing concepts, it is economically and technically feasible for Europe to mobilise €1trn for Africa within 10 years without being forced to economise in other areas (especially since investments in Africa could accelerate the transition to sustainable energies).
There clearly has to be a buy-in from individual African governments to the conditions that would be imposed. The issue, though, when it comes to investment in Africa, is seen to be corruption and abuse. Schoeller advocates focusing investment first on those countries that agree to adhere to specific rules – first, no bribery; second, no price cartels; third, no exploitation of labour; and lastly sustainable operations in terms of the environment, human and social capitals.
As well as running his family company, Schoeller is also the consul for Togo. It is no surprise, then, that he sees Togo as one of the countries in which he is keen to advocate European investment. The others include Botswana, Ghana, Kenya, Namibia, Senegal and Tanzania.
The Portuguese explorer Vasco da Gama created the first spice route to India via the tip of Africa in 1498. By reviving this connection via a Spice Route 2.0, say Schoeller and Schönwitz, Europe can lay the foundation for a flourishing economic area and counter the Chinese New Silk Road with something substantial – minus the colonial attitude. With the long-term goal of creating a European-African-Indian economic area, half of humanity could eventually benefit from Europe’s social-market model. For European asset owners, will there be a wake-up call for investment in Africa?
Joseph Mariathasan is a contributing editor to IPE and a director of GIST Advisory