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A lasting partnership: German-South African trade and investment
By Julian Jackson, article published 2003, Times Publications
Helmut Kohl in his historic 1995 address to the South African parliament made commitments to sustainable trade partnerships and future cooperation. Julian Jackson.
Politicians have a tendency to overstate their affinities with, and affection for, their international counterparts, but the "partnership" rhetoric of Germany and South Africa´s leaders has a certain ring of sincerity. That may, in good part, be because in this case people´s mouths are where their money is: Germany is South Africa´s most important trading partner and German companies have invested almost 3 billion in the country, making Germany the second largest direct investor in South Africa. The signs are that this is a partnership built to last.
It is remarkable how much interest South Africa generates among Germans, whose tourists, together with the British, account for the highest proportion of visitors to the country each year - over 6 million in total. But unlike these itinerants most of the 700-plus German companies in South Africa are here to stay and their impact on the South African economy and labor market is very significant. German companies generate a formidable annual turnover of close to 7 billion and they employ approximately 60,000 people, creating not only jobs but also making a significant contribution to South Africa´s technological development and vocational and other training, traditionally strong areas of German industry.
German companies can take some of the credit for positive trends in the South African labor market, with a 3.3 per cent rise of employment in the private sector in 2002. However, employment figures must be seen in the context of the wider economy, which in South Africa´s case has been generally healthy, growing by 3 per cent (GDP) in 2002 - a creditable achievement given the globally unfavorable outlook in 2002, and one which puts South Africa among the ten top growing economies in the world.
The export trade
The largest proportion of German companies in South Africa (39 per cent) operate in the service sector - particularly consulting, transportation, export/import - followed by engineering/machinery (16 per cent) and electronics (16 per cent). Germany is South Africa´s third largest export partner after the US and the UK, exporting vehicles, automotive parts, semi-finished goods, furniture, ore and coal. Germany´s main exports to South Africa are machinery and vehicles as well as electro-technical and pharma-ceutical goods.
German-South African trade suffered a slight downturn in 2002. German exports to South Africa were down 1.8 per cent from the previous year, with a total worth 4.36 billion, and German imports from South Africa were down 3.6 per cent at 3.21 billion. Total trade of 7.5 billion between the two countries gave Germany a trade surplus of 1.16 billion.
South Africa´s growing export industry has contributed to its economic growth. Several factors have contributed to this and, according to Joachim Fitza, Economic Councilor for the German Embassy in South Africa, export growth has been attributable mainly to the devaluation of the rand, the positive impact of the recent EU-South African Trade Agreement and the US´s African Growth and Opportunity Act (which regulates duty-free imports from Africa to the US).
Automobile industry
Other macro management measures have also helped. The South African government has been wooing the automobile industry, in which the Germans have an enormous stake. In order to boost its ailing motor export market, the South African government launched the Motor Industry Development Program (MIDP) in 1995. It offers the incentive to car manufacturers to increase plant activities for export in SA by offering export credit and reduced duties on foreign built imports. The scheme has been extended until 2012.
Partly in response to the MIDP initiative, BMW, DaimlerChrysler, Volkswagen and Toyota have invested in new plant at a significantly higher level than previously. Since the introduction of the program, fully built car exports have surpassed the R6 billion mark and they are expected to exceed R10 billion by the end of this year. Linked to this, exports of components have trebled in the same period. For example, in its Uitenhage plant in the economically poor Eastern Cape region, Volkswagen is manufacturing 30,000 Golf 4´s per year for export. The company has committed itself to a R1.6 billion capital investment program over the next five years. In a parallel move, DaimlerChrysler has announced that it is investing approximately R1.3 billion in order tomove its entire production of right-hand drive C-class Mercedes cars from Germany to the Eastern Cape. The move will create 800 new plant jobs and 3000 further jobs in the supply industry.
Business organizations
But these encouraging investment figures remain a feature mainly associated with the presence of large firms. According to Mr Klaus Doering, President of the Southern African German Chamber, small and medium-sized firms remain reluctant to invest in South Africa and he has identified the need for the Chamber to work even more closely with all concerned parties, in particular the German Africa-Association, the Southern Africa Initiative of German Business (SAFRI) and interested institutions in Germany and in SA to help remedy this situation.
SAFRI was founded in 1996 to focus public attention of the potential of Southern African Development Community (SADC) countries. It is chaired by Juergen E Schrempp, Chairman of DaimlerChrysler, and supported by the Africa-Association, the Federation of German Industries and the Association of German Industry and Commerce. Among other things, the initiative provides advice to the Southern African Development Community (SADC) for integrating the region, particularly on how to implement plans to create a functioning free trade area by 2005.
Having celebrated its 50th anniversary last year the SA-German Chamber of Commerce and Industry is a well-known and established player on the South African business scene.
Today the Chamber represents about 700 member companies of which approximately 450 have a presence in South Africa. The Chamber plays a creative and facilitative role in many areas relevant to business. For example, consistent with the high importance attached to vocational training in Germany (whose workforce is exceptionally skilled by international standards) the Chamber and its member companies run a vocational qualification scheme aimed primarily at underprivileged black school-leavers.
The Commercial Advancement Training School (CATS) is run in cooperation with German businesses, including e.g. DaimlerChrysler, Krupp, MAN and many others. Whilst the Chamber provides training facilities and teachers, the 30 companies that are involved employ students on a salaried basis to work in their companies for up to two years. One day a week students attend theory courses, including accounting, commercial law, computer skills, bookkeeping, etc. The scheme has been very successful, producing approximately 200 graduates every year, most of whom continue to work for their sponsor companies. The Chamber also runs the Technical Advancement Center (TATS), a builder´s training center in Soweto, which provides free training to builders.
The German Government
The German Federal Government has strong ties with South Africa, both by way of ongoing political contact, and by way of legislative and financial measures designed to maximize South Africa´s potential as a trading partner. For example, recently a delegation from a German special government committee for Transport, Construction and Housing visited South Africa on an information trip, the main purpose of which was "to deepen the German-South African partnership."
Examples of facilitative legislative measures include a treaty concerning reciprocal encouragement and protection of investments and a double-taxation treaty. At the regional level, the "Laender" also operate initiatives with various sectors in the SA community, including at provincial level. "Laender" delegations make regular visits and have created partnerships in various areas. For example, immediately after the inauguration of the new South Africa, Bavaria entered into various "sisterhood agreements" with provinces like the Western Cape and Gauteng. Many of these involve knowledge/skills transfer from Germany in areas like vocational training, e-learning and others. In cases like these, benefits for the Germans tend to be indirect and long-term, but in the longer term the partnership works both ways.
Africa´s importance on the agenda of developed nations is increasing. Recently, the G8 countries invited the heads of state of South Africa, Nigeria, Senegal, Algeria and Egypt to discuss Nepad and the G8´s own Action Plan for Africa; the need for a more intensive partnership with Africa was identified. In these debates the trend is moving away from talking of donor-recipient relations and toward that of cooperating partners. The underlying message is that African nations must, in the first instance, take responsibility for their situations. For example, in June last year, the German Chancellor, Gerhard Schroder, said: "It certainly makes more sense to intensify, wherever possible, regional economic cooperation than to wait for large-scale infrastructure projects to be supported and funded by the international community. That African countries have difficulty marketing their products is due partly to the fact that their regional markets are insufficiently developed - and there we can and must help." Hence, although a third of Germany´s development budget flows into Africa, Mr Schroeder´s view on development is that, "it is not enough merely to transfer resources to Africa, or to increase such resources." Nevertheless, Germany and the EU committed themselves at the Monterrey conference in Mexico to increase official assistance over the next four years. Similarly, under the Cologne debt relief initiative, 26 countries, including 22 highly indebted ones, benefited from US$ 40 billion debt relief. Other measures have been designed to reward particularly effective reform efforts, and the G8 Action Plan earmarks 50 per cent of additional funds agreed in Monterrey for Nepad enhanced partners. Germany acknowledges the need to level the playing field in Europe to enable African countries to sell their products on fair terms. Germany has also committed itself to support selected sectors with a view to achieve the Millennium Development Goals by 2015. For example, over the next five years Germany plans to double its support for investment in primary education by developing countries.
Public Private Partnership
The German official policy on the relationship between business and development is that they are neither necessarily separate nor incompatible aims. As a result, the concept of Public Private Partnerships (PPP) has shot to the top of the development agenda. The core philosophy of PPP is development cooperation between governmental development agencies and the private sector. According to Hans-Joachim Rabe of the state-owned German Company for Technical Cooperation (GTZ), the need for this approach arose from the fact that public funds for development have recently not increased significantly (around US$ 50 billion p.a., worldwide, for the last 10 years). Investments from the private sector however have been steadily growing, close to US$ 200 billion towards the millennium.
The South African government has been wooing the automobile industry, in which the Germans have an enormous stake.
With many analysts arguing that private investments were succeeding in creating jobs and income and in some cases initiating developmentally beneficial changes, the next logical step of cooperation, was obvious. A special fund was set up by the Federal Government to promote such cooperation, and made available to three agencies: German Technical Cooperation (GTZ), cooperating with business in technical areas, the German Development Company (DEG) and the Reconstruction Loan Company (KfW), who concentrated on financial cooperation through equity stakes and loans.
GTZ has been accelerating its PPP programs throughout the developing world, seeking out private companies as potential partners for cooperation, identifying sectors in which joint efforts seemed tangible, and implementing projects that could later be used as models for a future cooperation. During the first three years of operation, the PPP program received almost 900 project proposals from private enterprises and business associations. Typically, successful projects involved private cost participation of over 50 per cent. One of the successes of the program has been that small and medium-sized companies have been keen to cooperate within this framework. The program has been so successful that the government has committed itself to further funding for another three years.
In South Africa, DaimlerChryler (DCSA) and GTZ have established a PPP to develop a strategy for dealing with AIDS in the workplace and disseminating information among employees and their families. With DCSA's 4,200 employees, whose households on average number nine, the information disseminated reaches over 37,000 persons. In another project, DEG and a private company, IFU, are introducing an electronic network for medical diagnoses. With the help of DEG, IFU was able to conduct a feasibility study on how the technology would be received in South Africa and neighboring states. Meanwhile, tests have started and a German-South African joint venture has been established. German agencies are now widening their focus and GTZ, for example, is increasing efforts to integrate more PPP components into classic projects within the field of bilateral technical cooperation.
Looking back over the last ten or so years there can be little doubt that South Africa and Germany have both been committed to the vision of sustainable trade partnership and cooperation. This ongoing commitment is not only a symptom of the success of the partnership, but also a cause, which gives reason to believe that the two countries will continue to grow closer in the course of time.
A lasting partnership: German-South African trade and investment - in PDF format 
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