de Radu Magdin

CEO of Smartlink Communications. Global analyst, consultant and trainer, passionate about leadership, global communications and competition.

At the recent European Union meeting in Brussels with African leaders, the mood was optimistic. While accusations of unfair vaccine distribution linger, the overall mood was dominated by the European Union’s new Global Gateway patchwork of initiatives. These lavish funds on long-term issues for the EU, including a better relationship with the African continent.

While pledging various things to Africa is as much a staple of Western politics as kissing babies, there is every reason to be cautiously optimistic regarding the trajectory of relations, including business opportunities. In particular, trade relations may see their own heyday, which may translate into significant business opportunities for the EU.

The Case For Optimism

The reasons optimism may be warranted can be boiled down to three factors. None change the tide in and of themselves, but in aggregate, they may precipitate an underlying phase shift in relations that brings new opportunities.

Briefly, these are:

1. The African Continental Free Trade AreaMORE FOR YOU‘We Can Control Our Own Destiny’: John Zimmer Shares Lyft’s Vision For The Company’s Future And $1 Trillion Market OpportunityFour New Microsoft Surface Computers Plus A Folding Phone—And Other Small Business Tech NewsThe LSE Alumni Turning Their University Into A Startup Powerhouse

The relatively recent African Continental Free Trade Area offers the promise of intra-regional trade growth as supply chains become polarized. That means opportunities for European joint partnerships with businesses in Africa, one of the fastest-growing markets in the world.

In itself, this won’t work miracles. However, it sets in motion the reversal of premature deindustrialization and the establishment of better state control and bureaucratization. Moreover, it quite literally paves the way for tackling the African infrastructure gap, which would help drive forward the formalization of Africa’s vast shadow economy and informal businesses, which are currently estimated to generate about half of Africa’s economic activity.

2. European Recalibration

With the NextGeneration and the Global Gateway initiatives, the European Union seems to be taking its collective future more seriously. Particular timelines and aspects may invite debate, but the overall targets are correctly acknowledged.

One of those is Africa. It’s no understatement to say that “Europe’s future is being decided in North Africa.” One potential future scenario involves Europe being integrated into Africa and Asia to an extent that would make European welfare states impossible. As Robert Kaplan provocatively puts it: “Europe, at least in the way that we have known it, has begun to disappear.”

As such, European Union leaders who might wish to preserve territorial security and welfare states have every incentive to open their checkbooks for Africa as much as they would for green energy or national security, and a healthy flow of funds may be expected. With that influx come significant international opportunities for businesses.

3. Chinese Normalization

Leading up to the 20th Party Congress, Chinese leadership is beginning to normalize relations with African countries, including offering loans. While there has been much Western media chatter about Machiavellian “debt trap diplomacy,” the perspective from Beijing may be very different—and perhaps more realistic.

Desperate for commodities, China has often funded projects that Western financial institutions wouldn’t touch, lest failure result in defaults on debt and accusations of neocolonialism. As China normalizes its relations, it seems to be considering more partnerships with European, which is to say non-American, companies to share risks and costs, leaving ample space for cooperation and potentially lucrative projects.

Conclusions

The many opportunities opened by the Continental Free Trade Area are strongly advocated for by African business leaders themselves as well as government leaders, who are more than keen to seize on what could one day be a $3 trillion opportunity by some estimates. For many European businesses, this may mean not so much a new course of action as scaling current relations and business investment.

The most straightforward commercial opportunities in the very short term may be seen in the luxuries market. A commodity prices boom, however short-lived, means many businesses linked with state coffers will see an uptick in profits, and disposable income at this level of wealth tends to translate into conspicuous consumption. In the medium term, minor mean reversions in African manufacturing and communications are the most apparent opportunities. The first may be monetized by scaling up any manufacturing operations currently in place. European business are in the pole position to gain exposure from increases, with Europe representing about 35% of external suppliers of manufacturing goods. The second is a matter of price arbitrage: African telecoms are notorious for low quality and prices above the global average, partially due to state-mandated monopolies. The opportunity is now there to bypass these monopolies due to service liberalization. In the longer term, opportunities in closing the African infrastructure gap are self-evident, in particular the potential for joint ventures with Chinese companies who may wish to share risks.

Each of these elements has fallen into place to fast track EU businesses’ cooperation with African ones: The main competition is proving quite accommodating, lavish funds are being prepared, and the market opportunity has just made itself as welcoming as it could. European businesses may wish to seize this opportunity with both hands.

www.forbes.com