The colony of South West Africa is declared a German Crown Colony in 1890, and more troops are sent.

In July of the same year, as part of the Heligoland-Zanzibar Treaty of 1890 between Britain and Germany, the colony grows in size through the acquisition of the Caprivi Strip in the northeast, promising new trade routes into the interior.

The Caprivi Strip, or Caprivi, is named after German Chancellor Leo von Caprivi (in office 1890–1894), who negotiates the acquisition of the land in an 1890 exchange with the United Kingdom.

Caprivi had arranged for the Caprivi strip to be annexed to German South West Africa in order to give Germany access to the Zambezi River and a route to Africa's east coast, where the colony of German East Africa (now part of Tanzania) is situated.

The river will later prove unnavigable and inaccessible to the Indian Ocean due to the Victoria Falls.

Kaiser Wilhelm II dismisses German chancellor Otto von Bismarck on March 18, 1890.

Bismarck, feeling pressured and unappreciated by the Emperor and undermined by ambitious advisers, had refused to sign a proclamation regarding the protection of workers along with Wilhelm, as was required by the German constitution.

His refusal to sign was apparently to protest Wilhelm's ever increasing interference with Bismarck's previously unquestioned authority.

Bismarck had also worked behind the scenes to break the Continental labor council on which Wilhelm had set his heart.

The final break came as Bismarck searched for a new parliamentary majority, as his Kartell had beenn voted from power as a consequence of the anti-socialist bill fiasco.

The remaining forces in the Reichstag were the Catholic Centre Party and the Conservative Party.

Bismarck had wished to form a new block with the Centrer Party and invited Ludwig Windthorst, the parliamentary leader, to discuss an alliance.

That had been Bismarck's last political maneuver.

Upon hearing about Windthorst's visit, Wilhelm was furious.

In a parliamentary state, the head of government depends on the confidence of the parliamentary majority and has the right to form coalitions to ensure their policies have majority support.

However, in Germany, the Chancellor dependa on the confidence of the Emperor alone, and Wilhelm believes that the Emperor has the right to be informed before his minister's meeting.

After a heated argument in Bismarck's office, Wilhelm—to whom Bismarck had shown a letter from Tsar Alexander III describing Wilhelm as a "badly brought-up boy"—had stormed out, after first ordering the rescinding of the Cabinet Order of 1851, which had forbidden Prussian Cabinet Ministers from reporting directly to the King of Prussia and required them instead to report via the Chancellor.

Bismarck, forced for the first time into a situation that he could not use to his advantage, had written a blistering letter of resignation, decrying Wilhelm's interference in foreign and domestic policy.

The letter, however, will be published only after Bismarck's death.

Bismarck resigns at Wilhelm II's insistence at the age of seventy-five.

He is succeeded as Imperial Chancellor and Minister President of Prussia by Leo von Caprivi.

After his dismissal he is promoted to the rank of "Colonel-General with the Dignity of Field Marshal", so-called because the German Army does not appoint full Field Marshals in peacetime.

He is also given a new title, Duke of Lauenburg, which he jokes will be useful when traveling incognito.

He will soon be elected to the Reichstag as a National Liberal in Rudolf von Bennigsen's old and supposedly safe Hamburg seat, but he will be so humiliated by being taken to a second ballot by a Social Democrat opponent that he will never actually take up his seat.

Bismarck will enter into resentful retirement, live in Friedrichsruh near Hamburg and sometimes on his estates at Varzin, and wait in vain to be called upon for advice and counsel.

Britain cedes the Heligoland islands (in the German Bight) to Germany, in return for protectorates over Wituland and the Sultanate of Zanzibar (the islands of Pemba and Unguja) in east Africa, by the terms of the Heligoland-Zanzibar Treaty signed on July 1, 1890.

Germany thus gains the small but strategic Heligoland archipelago, which its new navy needs to control the new Kiel Canal and the approaches to Germany's North Sea ports.

In exchange, Germany gives up its rights in the Zanzibar region in Africa, allowing Zanzibar to provide a key link in the British control of East Africa.
 
Germany gains the islands of Heligoland (German: Helgoland) in the North Sea, originally part of Danish Holstein-Gottorp but since 1814 a British possession, the so-called Caprivi Strip in what is now Namibia, and a free hand to control and acquire the coast of Dar es Salaam that will form the core of German East Africa (later Tanganyika, now the mainland component of Tanzania).

In exchange, Germany hands over to Britain the protectorate over the small sultanate of Wituland (Deutsch-Witu, on the Kenyan coast) and parts of East Africa vital for the British to build a railway to Lake Victoria, and pledges not to interfere with British actions vis-à-vis the independent Sultanate of Zanzibar (i.e. the islands of Unguja and Pemba)

In addition, the treaty establishes the German sphere of interest in German South West Africa (most of present-day Namibia) and settles the borders between German Togoland and the British Gold Coast (now Ghana), as well as between German Kamerun and British Nigeria.

Britain thereby divests itself of a naval base that covers the approaches to the main German naval bases in the North Sea, but which will be impossible to defend as Germany builds up its navy.

It immediately declares a protectorate over Zanzibar and, in the subsequent 1896 Anglo-Zanzibar War, will gain full control of the sultanate.

The treaty serves German chancellor Leo von Caprivi's aims for settlement with the British.

After the 1884 Berlin Conference, Germany had already lost the "Scramble for Africa": the German East Africa Company under Carl Peters had acquired a strip of land on the Tanganyikan coast (leading to the 1888 Abushiri Revolt), but had never had any control over the islands of the Zanzibar sultanate; the Germans give away no vital interest.

In return, they acquire Heligoland, strategically placed for control over the German Bight, which, with the construction of the Kiel Canal from 1887 onward, has become essential to Emperor Wilhelm's II plans for expansion of the Imperial Navy.

Wilhelm's naval policies abort  an accommodation with the British and will ultimately lead to a rapprochement between Britain and France, sealed with the Entente cordiale in 1904.

The misleading name for the treaty will be introduced by ex-Chancellor Otto von Bismarck, who intends to attack his despised successor Caprivi for concluding an agreement that Bismarck himself had arranged during his incumbency.

However, Bismarck's nomenclature implies that Germany has swapped an African empire for tiny Heligoland ("trousers for a button").

This will be eagerly adopted by imperialists, who will complain about "treason" against German interests.

Carl Peters and Alfred Hugenberg will appeal for the foundation of the Alldeutscher Verband ("Pan-German League"), which will take place in 1891.

The exposure of the secret Reinsurance treaty by former chancellor Bismarck, in retirement, causes a huge sensation when he reveals the existence of the treaty to a German newspaper, the Hamburger Nachrichten, in 1896.

He blames his successor (Count Caprivi) as responsible for the non-renewal in 1890.

Bismarck says the failure of the treaty made it possible for France and Russia to draw together.

The failure of this treaty will be seen as one of the factors contributing to the First World War, due to Germany's increasing sense of diplomatic isolation.