OBG talks to Georg Wilfried Schmidt, Regional Director for Sub-Saharan Africa and the Sahel, German Federal Foreign Office

Interview: Georg Wilfried Schmidt

What can emerging markets learn from the success of small and medium-sized enterprises (SMEs) in German-speaking countries?

GEORG WILFRIED SCHMIDT: A major factor in Germany’s extraordinary economic success is the large number of SMEs, with their typical dedication to improving all aspects of their operations. They represent 99% of German companies and account for 52% of economic output. They are often family-run businesses operated by generations of committed individuals. They personally invest heavily in their businesses and lead their employees by example, encouraging high morale and attention to detail. By identifying and adapting to market niches, these companies react flexibly to economic trends, and many have become world leaders in the manufacture of often small but indispensable products. After careful consideration, these companies prefer to move ahead and take risks; however, they would never jeopardise the very existence of the entire enterprise.

Another crucial element of success is the so-called dual system, in which the German business community and the public education system collaborate in the development of vocational training. Under the well-established dual system, SMEs offer training positions in their companies and combine theory and practical work. At the end of such an apprenticeship, lasting an average of three years, the young workers are ready to work without further training.

What are the biggest challenges to SME transactions between West Africa and Europe?

SCHMIDT : German SMEs produce for national, regional and international markets, yet the majority of firms generate the main share of their income from the national and regional markets. Production for export is generally a bigger challenge than producing for the local market. To be a successful exporter, you not only have to understand your local market but a foreign market too. Many German SMEs that are successful abroad cooperate with partners who are rooted in the foreign target market. Operating within the EU is less of a challenge than operating in Africa, as EU regulations and rules have been harmonised and the business environment is shaped by solid economic and fiscal policies, not to mention the existence of the rule of law. The challenges facing African SMEs operating in Europe include compliance with those rules and regulations, as quality requirements and consumer protection laws in the EU are generally of a higher standard than in Africa.

African SMEs should establish themselves in their home markets first. African markets, especially in West Africa, are developing: purchasing power is rising and a growing middle class has higher expectations when it comes to product quality. An African company that succeeds in these regional markets is ready for a bigger challenge on the world markets, such as in the EU.

In what way can bilateral aid play a role in fast-growing economies such as Ghana?

SCHMIDT : Despite African markets growing at robust rates, they are still not the first choice of destination when it comes to the highly competitive field of foreign direct investment. By advising local governments, German development cooperation programmes in Ghana aim to support the creation of an environment that is conducive to investment. Another element of our programmes is the strategic support for sectors that show potential for investment, such as the energy sectors in Nigeria and Ghana. Structural support is yet another sphere of development cooperation, and in Ghana and Nigeria, German cooperation programmes are aimed at improving the framework for SMEs.

Ghana has been classified as a lower-middle-income country, which is in itself a success. However, this does not mean that our development cooperation is no longer needed. We remain active in the country in order to help make the GDP growth of recent years more inclusive, by enabling small farmers to enhance their production, by developing micro-financing instruments and, last but not least, by supporting decentralisation.