European contractors have a long tradition of engagement in Africa. However, it has become more difficult over the past two decades to maintain a significant presence on the African continent, and in particular in the Sub Sahara region. Whilst European international contractors have successfully adapted their internationalisation strategies to the needs of the globalisation era and were able to more than triple their international turnover since 1990 from then 53 billion US$ to some 190 billion US$ in 2009. the same statistics reveal that no more than 10% of overseas works in 2009 were carried out in Africa, compared to 15% in 1990.
What are the main reasons for the withdrawal of many European companies?
- A sharp reduction in the financial and human resources allocated to infrastructure during the 1990s. It was – erroneously – anticipated by the international donor community that the private sector would step in and invest into privatised infrastructure service companies in developing countries. Subsequent experience showed, however, that the risks associated with privately financed infrastructure in the developing world were in many cases too high and thus the initial appetite of investors to engage in these types of projects decreased dramatically.
- A strategic realignment of the development policy of Multilateral and Bilateral Development Banks which, despite shortcomings in partner countries’ management systems, are shifting their financial support from project aid to budget support and their procurement rules from internationally harmonised Standard Bidding Documents to a rather diverse range of Country Procurement Systems.
- A growing importance of the financial markets as well as Corporate Governance requirements motivated European infrastructure providers to focus increasingly on business profitability. This meant a concentration of activities on foreign markets with a business-friendly legal framework and minimum political and economic risk as well as an evolution of many European contractors into construction-related service providers. Yet, European development agencies have hardly recognised this change of strategy, as they offer only a narrow market for privately operated infrastructure projects.
- A distortion of international competition provoked by the fact that the new competitors from emerging markets are not bound by the strict OECD regulations on financial, environmental, social and ethical standards which have subsequently been transcribed into the national laws of OECD signatories. Obviously, such rules, if applied in Africa unilaterally to the OECD industry, place a crucial disadvantage on European infrastructure providers vis-à-vis its competitors from non-OECD countries.
EIC is in close contact with the European Commission and the World Bank in order to rebalance the framework conditions on the European and international level that would allow European contractors to become more actively engaged in Africa again.