Polish offensive in Africa

Polish businesses are already becoming increasingly active in Africa. And with large, private investments supported by platforms and institutions bringing together firms interested in expansion, Poland could be well placed to expand its trade and investment links with the “continent of the future”, making the most of its lack of colonial baggage and own experiences of economic transition.

Africa Rising?

Ten years ago, bold predictions envisaged Africa as 'the continent of the future’. Conflicts were weakening and Africa emerged unscathed from the financial crisis, while the Arab Spring brought hopes of uprisings against authoritarian governments in Sub-Saharan Africa too.

Africa’s demographic potential excited investors. According to projections, the population of Nigeria could rise to almost 800 million by 2100, while DR Congo, Ethiopia and Tanzania could also be among the world’s top ten most populous countries. A third of the global population will live on the continent until the end of the century. The International Monetary Fund announced that, within a few years, half of the world’s 20 fastest-developing economies would be in Africa, and its overall GDP would increase by 6-7% annually for the next two decades. “Trade not aid” became the watchword for dealings with Africa.

Yet a drop in raw material prices in 2014 led investors to tone down their enthusiasm. Countries dependent on exports of metals and hydrocarbons had huge problems balancing their budget, while debts rose and investments dried up. Afrosceptics pointed out that, despite the obvious demographic potential, the old barriers to growth remained.

The continent remains tempting due to its markets, abundant natural resources and growing population, but it should be approached in terms of individual countries, not as a whole.

The Polish perspective

What place is there for Poland in the African jigsaw puzzle? An important question is our perception of this diverse continent. The first thing that Poles often associate with the average African society is poverty. Since Poland began its own transformation, and then joined NATO and the European Union, it feels – rightly – part of the developed world.

Unfortunately, though, Poles’ pride in their country’s growing position in the international arena and belonging to the most important international structures in the region has shortened their memory. Seeing “backward” Africa, we forget that a few decades ago we were at a similar level of economic development. Looking at societies with a sense of superiority is never conducive to doing business there.

On the other hand, Poles have an inferiority complex towards the West. We see Africa as reserved for the former colonial powers and global players, and therefore often confine ourselves to the safe but cramped European backyard. Investors are satisfied with low margins of 2% annually in the stable EU environment, leaving margins well over 10% to bigger powers. Other countries strong in their regions but close to Poland in terms of development, such as Malaysia, Brazil and Turkey, have no such complexes.

Alongside infrastructural investments, China (as well as Turkey) makes money on cheap single-use products. Poland, which does not have to rival global players in terms of scale, is able to compete with European-quality products at attractive prices. This is how it is promoted in Senegal, for example.

Poland’s significant advantage over both the European and the American presence is the lack of a colonial past. Not only do African partners not have historical prejudices against us, but we also share their experiences of being part of foreign empires.

Poland can also promote its own path towards liberalisation of the economy and capitalism. This rhetoric will help to build trust, as African societies are more receptive to investors not burdened by history. The example of China shows this – its expansion is welcomed by Africans as a fulfilment of economic interests, not geopolitical ones.

Many Africans are also aware of the Polish success story of economic liberalisation and attracting the kinds of foreign investments that Africa needs. Additionally, in the 1970s Poland hosted African students on scholarships, giving us a place in the consciousness of parts of the educated workforce.

Are we really exploiting our potential? In 2018 exports from Poland to Africa were $2.8 billion, just 1.1% of all exports. Last year, this amount rose by 25%. We send more to Denmark than to the whole of Africa. One quarter of this went to South Africa, demonstrating what little use we make of the trading potential with the continent’s other countries.

Cooperation the key to success

Making the most of the above advantages, the expansion of Polish companies gathered pace after 2011. In 2012-2015 Polish exports to Africa increased by almost 68%. Our main trading partners in Sub-Saharan Africa are South Africa, Senegal, Tanzania, Kenya and Ghana. Africa’s rise was given impetus in Poland by the formation of the Council of Investors in Africa and the media activity of major players in Polish business.

Development would not be possible without increased diplomatic activity and cooperation in the private sector. In the last few years, the Polish Investment and Trade Agency has opened offices in Ethiopia, Kenya, Tanzania, South Africa, Angola, Nigeria and Senegal.

Government patronage is essential because it not only gives a greater status to investments in the various countries, but in particular protects them and monitors them. The agency also organises fairs, workshops and economic missions, contacts potential importers and promotes selected markets through programmes like GoAfrica or expert conferences for businesses.

Government support is also offered by the National Chamber of Commerce and visits of high-ranking diplomats, including the president and foreign minister, during which larger contracts have been signed – such as by tractor producer Ursus and software company Asseco in Ethiopia, or former prime minister Donald Tusk’s visit to Zambia, which has huge copper reserves of interest to KGHM.

Also significant are joint European initiatives including the EU opening an official dialogue with the African Union and the establishment of the European Economic Chamber. These should not be seen as competition for Polish chambers, as European organisations are seeking to bring about abolition of barriers for all businesses from the continent.

Private initiatives likewise play a major role. The main initiator of the formation of the Council of Investors in Africa was the late businessman Jan Kulczyk, whose company (present in 20 African countries) invested mainly in the extractive sector. Its purchase of a gold mine in Namibia jointly with Qatari sheikhs and interest in aluminium, gold and diamonds in Guinea attracted media interest.

Kulczyk Investments is joined in the council by giants of the Polish economy: Asseco Poland, Krezus, Lubawa, Polpharma, Ursus, Kopex, OPEN Architekci, Navimor International and Pietrucha International.

It is also worth mentioning the Polish-African Chamber of Commerce and Industry as well as the Central and Eastern Europe Development Institute, a think tank that produces reports, promotes economic interests, supports business initiatives in Africa and organises conferences for Central and Eastern European countries. Each of these institutions is an example of how collaboration in organisations brings benefits for all sides in developing enterprise throughout Poland.

Still, however, they get less support than French, Dutch or Turkish companies, which have a broader range of associations, chambers of commerce and funds. Combined with a long-standing understanding of the market (trading and colonial contacts), greater capital and experiences of other parts of the world, these made it much easier to penetrate African markets. But this is not to say that we should give up at the outset.

Which sectors to invest in?

The mining industry has to date been the most popular among global investors in Africa. Although hydrocarbons account for a large part of Nigeria and Angola’s budget, this is still just a fraction of the production potential of the Persian Gulf countries. Oil reserves discovered in Uganda in 2005 are still to be extracted.

Promising areas are platinum, chrome and phosphate rock (Africa has more than 70% of global reserves in each cases), as well as gold, cobalt and diamonds (over 50% of global deposits). The proportion of raw materials in Africa’s exports between 1962 and 2014 was between 50% and 90%, although this also includes food and metals.

Investments in the mining sector, however, entail enormous outlays and major political risk, as they usually take place under the watchful government eye. This makes it necessary to find a big local partner with risks of arbitrary administrative decisions and corruption. There is also significant competition, as oil companies from China, India, Brazil, Russia and Malaysia are already present.

Local governments are more enthusiastic about investments in production (including industry and processing), which entail activity in other sectors (services, transport, commerce) and cause a trickle-down effect. This is a classic win-win situation – in addition to the investor’s profits, the hosts also gain qualified personnel and jobs.

Consumer goods have a natural growth potential owing to projected population increases. The greatest chance for expansion of Polish companies is in the food industry, especially dairy and meat. In the coming decades, Africa will be its biggest market. According to data from Statistics Poland, a government agency, in 2018 the country exported 145,000 tonnes of meat and meat products worth 445.6 million zloty to the whole of Africa. These numbers have been rising steadily in recent years.

Most of this arrives in South Africa, where Poland was the EU leader in poultry exports, although it remains difficult to compete with chickens from the USA and Brazil and their low production costs.

In 2018, Poland’s dairy industry recorded exports to Africa worth almost 700 million zloty (in sub-Saharan Africa we traded most with South Africa and Senegal). Poland has a good chance to play a major role in the agricultural market, mainly in processing and storage of fruit and vegetables. Solutions for dealing with waste, the health service and logistics are also all required, although here Poland has a worse starting position than its European competitors.

Scarce commodities on the African market also include machinery, finishing materials and car parts. We can also participate in the modernisation of agriculture – the Polish firms Feerum and Araj recently signed contracts for construction of silos in Tanzania to store 250,000 tonnes of cereal grains and corn. Ursus previously constructed a tractor production line in the same country.

A promising market for developers is Nigeria, with a current housing deficit of more than 10 million expected to rise fast in the coming years. Kenya is experiencing a construction boom, and this sector also needs investment in Ghana.

Chinese finishing materials are often lower quality, opening a path to Polish products. An exhibition salon for Polish finishing materials has opened in Senegal in conjunction with the PAIH office in Dakar, leading to further contracts.

Yet this expansion has not been without difficulties. Polish exporters face barriers with reaching the right clients in Senegal, while strong support of local production is needed in South Africa, Nigeria and Kenya. South Africa also has high tariffs and an onerous procedure for obtaining the required transport permits. Furthermore, a large proportion of the profits goes to Dutch, Belgian and French intermediaries who transport Polish meat to Africa.

Africa’s consumer potential should also not be overestimated. Its middle class, whose growth is key to stable economic development, is small, without strong foundations, and hard to estimate and define. Only with a monthly per capita income of $5,000 do households start to spend more than half their budget on goods other than food, and in Africa there are still millions of people living on less than a dollar a day.

Polish companies in Africa

In recent years, the most spectacular success has been enjoyed by Navimor from Sopot, which worked with 93 companies to build the Academy of Fisheries and Marine Sciences for 400 million zloty in Angola. This is the biggest European educational project in the whole of Africa. The firm is also present in other African countries including Nigeria, Senegal and Mauretania, implementing sea investments and building hospitals and schools.

Asseco is another that can boast successes in Africa. In the presence of President Andrzej Duda, it signed contracts for the informatisation of the Ethiopian energy sector. After this sale, the group spread its wings to other markets, and is pursuing contracts with corporations in the banking and insurance sector in Nigeria as well as organising workshops in Angola.

Other notable investments from large companies are Kulczyk Investments in the mining sector and the presence of the Pietrucha Group in Rwanda, seen as a key to East Africa, and Nigeria, where the River Niger regulation project collapsed after the sharp fall in raw goods prices in 2014. Rwanda’s opening to foreign investors also resulted in the first investment in production and export of tin in the whole of Central and Eastern Africa. The Polish investment fund Luma Holding became involved, buying a local tin works and forming an alliance with a local firm in 2019.

In the processing and storage sector, a company with interesting prospects is Faspol, which in 2018 installed 350 super-modern milk coolers for $22.5m and set up a local firm.

In recent years, Ursus could boast of investments worth tens of millions of euros in Ethiopia (sales of 3,000 tractors for $90m in 2013), Tanzania (two production lines and 2,400 tractors sold in parts), Zambia (2,700 vehicles for $100m), plans for construction of a factory and agricultural machine factory in Sudan, and also plans to enter Namibia. Although the company’s financial outlook is not positive (almost 100 million zloty losses in 2019), its example shows that Polish firms can win contracts in Africa.

Of course, there are more examples of unsuccessful Polish investments. Grupa Azoty, a chemical group, which bought majority shares in the African Investment Group for almost $30 million in 2013, has not succeeded in conquering Africa. Last year it concluded that phosphorite extraction in Senegal was unprofitable, and pulled out of the project.

The future

The last decade has brought a new perspective on Sub-Saharan Africa in Poland from investors and the media.

’Discovering Africa’ came with exaggerated optimism regarding economic possibilities, followed by a more sober outlook. Africa remains the continent of the future, but investment plans cannot be made for the whole continent, but selectively, considering the unique demands of each country.

Although for Polish businesses Sub-Saharan Africa is no longer a mysterious, unknown world, they still do not make the most of its opportunities. To succeed in Africa they need patience and determination, and in technical terms collaboration with agencies and institutions on the ground and familiar with the market.

Private companies and the reinvigorated Polish Investment and Trade Agency can help here. To join the race for African consumers, Poland should act courageously, taking advantage of the good quality of our products at affordable prices, technological know-how and genuine strength in the food sector.

Polish version is available here. Also published in English on NotesFromPoland.