March 4, 2021
2020 was supposed to be a banner year for German companies operating in sub-Saharan Africa. Then came COVID-19. The pandemic hit the entire global economy and changed business relationships – also in sub-Saharan Africa. 75 percent of German companies originally wanted to expand their activities on the continent. In the end, only 13 percent did so. This is the result of a study by Tilo Halaszovich, Professor of Global Markets & Firms, and doctoral candidate Sonja Mattfeld at Jacobs University Bremen. The study was conducted in cooperation with the Deutsche Gesellschaft für Internationale Zusammenarbeit, a German development agency.
The economists surveyed 100 German companies about their pre-pandemic plans, the impact of COVID-19, and the outlook for their future operations in sub-Saharan Africa. The sample represents about 20 percent of all investors. The researchers focused on sub-Saharan countries with the exception of South Africa. The investment focus of the surveyed companies lies primarily on the major economies of Nigeria, Kenya and Ghana.
"The decline was dramatic," said Halaszovich. 75 percent of the companies surveyed were planning to expand before the pandemic. Just 13 percent of planned investments and six percent of trading activities could actually be expanded – export activities had to be reduced even more. The negative impact of the pandemic on exports in particular is based decisively on the pandemic’s effect on stable local economic structures, including free flows of goods, and on travel restrictions.
The pandemic led to considerable restrictions in public life in the countries south of the Sahara. Companies responded to these mainly by cutting short-term spending from travel and marketing budgets, whereas long-term adjustments such as reducing capital flows and laying off employees were rare. "Companies are in a holding pattern. They will move on once the crisis is over. This could lead to a 'rush hour effect' where many activities start within a very short time, as soon as it is possible again," said Halaszovich.
Africa offers a wide range of opportunities for German medium-sized companies in particular, the scientist is convinced. "The continent is attractive as a sales market. High growth rates, an emerging middle class and the trend toward urbanization are leading to a demand for high-quality goods that is hardly met locally." Halaszovich believes the German government, which is seeking a deeper partnership with the continent, can provide even more targeted support for companies' activities. "The demand for small-scale, rapid support measures with low administrative hurdles definitely exists."
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Professor of Global Markets & Firms
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Email: t.halaszovich [at] jacobs-university.de