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Towards a new EU-African partnership: Part 3, Investing sustainably in Africa

Towards a new EU-African partnership: Part 3, Investing sustainably in Africa

Written by Daniel Costa in Brussels and Boipelo Mogamisi in Johannesburg

The EU-Africa relationship has had its challenges over the years; concerns around fair trade, migration and the paternalistic nature of the association have at times eroded trust and cooperation between the two regions.

A new strategy framework has been proposed by the EU – one based on a clear understanding of the mutual interests and responsibilities of both trading partners. This new partnership is expected to be finalised at the 6th European-African Summit set to take place later this year. The agreement is seen as a pivotal step in addressing the imbalances that have plagued the relationship since its onset and positions the two blocs as equal partners in the fight for a more equal and just world.

To strengthen the EU’s alliance with Africa and develop a closer partnership, in March 2020 the European Commission proposed a new Strategy with Africa. Its ratification by the European Parliament, though delayed by the pandemic, has just occurred.

As the Strategy is vast, we believe there is value in breaking down key elements in a series of analyses, while exploring how Africa would view the proposed developments. This one focuses on sustainable investments towards Africa.

European sustainable investments empower Africa

Sustainability has long been at the heart of the European project. And though the term and its denotations are sometimes ‘stretched’, meeting the needs of present generations without jeopardising future generations is something that current EU policy strongly promotes. But sustainability is something that the EU drives not only in its internal border, but also with its external partners, such as the African Union.

The EU itself is already the largest investor in Africa with an FDI stock reaching EUR 222bn, well ahead of both the US (EUR 42bn) or China (EUR 38bn), and it has already stated that it will continue to use all the tools that are available under its external policies, and that it will support the efforts in developing countries. Bearing in mind that it was clear that the EU would put strong emphasis on sustainability in its Africa Strategy.

Due to the close links and geographical proximity of both continents, Europe and Africa could be great allies to bring sustainable and inclusive economic growth to each other.  Building on the Africa-Europe Alliance on Sustainable Investment and Jobs, the EU considers that the Alliance should be the central pillar of economic relations between the two continents going forwards, and that action should be targeted into three main areas: boosting sustainable trade and investments, improving the investment climate, and increasing regional and continental economic integration.

Public and private investments are central to stimulating sustainable economic development. Current EU instruments, such as the European External Investment Plan, already unlocked substantial investments in the continent, in both humanitarian and energy projects. But the EU believes that these investments should be even more focused and target the development of a climate-resistant infrastructure, while boosting access to finance. To achieve such a goal, the EU will make full use of more EU financial instruments, like budgetary guarantees under the European Fund for Sustainable Development, as well as the recently proposed Neighbourhood, Development, and International Cooperation Instrument (NDICI). Further coordination between the instruments and European development finance institutions will also implemented, so that a development of a strong private sector can occur in Africa. According to Parliament, such investments should also pay attention to support female entrepreneurship in rural and urban zones.

Another point in the Strategy was the EU’s support for the African Continental Free Trade Area Agreement, which was enforced on 30 May 2019 for the 24 countries that had deposited their instruments of ratification by this date.,.  Such an agreement creates a comprehensive continent-to-continent free-trade that would facilitate sustainable, efficient, and safe connectivity for investments in both continents.

But to allow for such investments to occur safely, investor confidence in Africa needs to be increased. There are many risks that investors need to face before making any decisions: from a lack of a transparent, secure, and stable regulatory framework, together with investment facilitation, or a lack of macro-economic stability.

The EU said that it will boost its dialogue with local public administration, so to share good practices, and develop arrangements to attract and facilitate investments through platforms like the International Platform on Sustainable finance. But one could argue that further action is needed. Closer cooperation between the private and public sector in Africa, and a push for political and economic reforms could be another approach, as at least the high political risks could be alleviated, with the private sector keeping a check on the public one.

The Strategy is very ambitious, and if implemented to its full potential, it will bring many opportunities to Africa such as further African economic integration, mitigated risks, and enhanced public investment by the EU through its mechanisms.

Africa’s Vision

The African Union has put in place an agenda that is focused on a fewer number of priority areas in an effort to ensure continental impact. Improving political affairs, working towards peace and security as well as economic integration and reinforcing Africa’s Global Voice are first on the agenda of creating an investment friendly African continent. The priorities address the challenges that hinder investment inflow from the EU as well as Africa’s key global trading partners. With this focus, the AU’s mandate should be to unlock value within the continent and unblock obstacles to progress.

With the African Continental Free Trade Area (ACFTA) Agreement in mind, the AU has posited Agenda 2063 championing a cause to create The Africa We Want.  Agenda 2063 is Africa’s blueprint and master plan for transforming Africa into the global powerhouse of the future. For the cause to be successful, the AU has drawn up the continent’s strategic framework that aims to deliver on its goal for the inclusive and sustainable development of Africa and its people. The ACFTA creates significant momentum for continental integration between the AU and EU as well as supporting the ultimate ambition of a continental single market. This partnership will increase intra-African trade, including with countries in North Africa, diversify exports and improve product quality and safety. The EU and the AU have a common interest in a stable, rule-based multilateral trading system centred on World Trade Organisation (WTO).

There needs to be an increased focus on areas such as clean energy, a sophisticated transport system, gender equality and youth empowerment as well as the changing global contexts such as increased globalisation and the ICT revolution with a partnership between the public and private sector. This will substantially increase environmental, social and financially stable investments that are resilient to the impacts of headwinds such as climate change. This promotes investment opportunities by scaling up the use of innovative financing mechanisms to boost regional and continental economic integration between the AU and EU.

Next: An EU-Africa partnership for peace

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