Washington: Economic growth in Africa has risen dramatically in recent years, but the continent’s vast economic potential has not yet been fully realized by the US government or the American private sector. In the past decade, Africa has been home to six of the 10 fastest-growing economies in the world – a number that is only projected to grow. According to the International Monetary Fund, the region is on track to grow by five percent this year, and the World Bank has noted that Africa could be “on the brink of an economic takeoff, much like China was 30 years ago and India 20 years ago.”
Trade between Africa and the rest of the world has tripled in the last 10 years, with an increase in exports of more than 200 percent and an increase in imports of 250 percent from 2001 to 2011.
There is a clear and pressing need for increased U.S. economic engagement in sub-Saharan Africa. Increased trade facilitates growth for U.S. businesses as well as our African partners, simultaneously strengthening our own economy and Africa’s emerging markets. In addition to creating jobs here at home, investment abroad allows U.S. companies to project American values in critical areas of the world. By modeling transparency, good governance, environmental responsibility, fair labor policies and the defense of human rights, U.S. businesses in Africa can set new standards for local companies and demonstrate the inextricable link between democratic values and economic growth.
The Obama Administration has recognized the urgent need to accelerate and deepen economic engagement in sub-Saharan Africa. In a June 2012 policy document entitled, U.S. Strategy Toward Sub-Saharan Africa, the Administration laid out a series of policies to meet this objective, including:
• working with our African partners to promote an “enabling” environment for trade and investment;
• improving economic governance and transparency while reducing corruption; promoting regional integration;
• expanding African capacity to access global markets; and
• and encouraging U.S. companies to trade with and invest in Africa.
Still, the overwhelming majority of the U.S. foreign assistance budget for Africa is focused on pressing humanitarian crises, including public health and food security. For example, the U.S. is the largest donor to the Global Fund to Fight AIDS, Tuberculosis and Malaria, and has provided more than $7 billion to date. In contrast with America’s investment in human capital and the African people, Chinese investment in the region is largely focused on infrastructure projects, such as roads, buildings and dams.
As the United States continues its vital investments in global health, there is also an opportunity for additional investment in the kind of economic statecraft that will facilitate a transition from aid to trade, guaranteeing a higher return on investment for the American taxpayer and better enabling a sustained U.S. government investment.
In addition to effective, comprehensive public sector investments, foreign direct investment (FDI) from the American private sector can play a pivotal role in opening markets and driving the trade relationship forward. Africa is currently the destination for just 1 percent of U.S. FDI, and more than half of U.S. FDI in Africa is concentrated in extractive industries. This lack of diversification is also evident in trade, with 75 percent of U.S. imports from Africa in 2011 concentrated in crude oil.
While the Executive Branch has a number of options for diversifying our trade and investment relationships with Africa, the top legislative priority should be the careful review and timely reauthorization of the African Growth and Opportunity Act (AGOA). This legislation has succeeded in opening African markets to American companies while supporting the growth of an African middle class, but should be reviewed with an eye toward diversifying product coverage and ensuring fewer of AGOA’s preferences are focused on oil. It is essential that Congress reauthorize AGOA well in advance of its expiration in September 2015.
While we depend on AGOA to increase African imports to the U.S., we must also work to increase U.S. exports to Africa. This will require partnering with African countries to strengthen governing institutions, enhance transparency, and reduce corruption. We must also continue to urge African governments to lift barriers to trade by modernizing infrastructure and transportation, as well as eliminating bans on products such as poultry. Lifting tariff and non-tariff barriers to trade will not only benefit Africa’s global trading partners, but will also help to increase regional trade, which accounts for only 11 percent of total trade on the continent.
Recommendations for a cohesive, effective U.S.-Africa economic engagement strategy:
1. Support African-led efforts to improve the business climate on the continent and remove barriers to trade;
2. Reauthorize and strengthen the African Growth and Opportunity Act well in advance of its 2015 expiration;
3. Improve coordination between U.S. government agencies and develop a comprehensive interagency strategy for increased investment in sub-Saharan Africa;
4. Increase the presence of U.S. Foreign Commercial Service Officers in sub-Saharan Africa to help U.S. companies navigate the business climate in the region;
5. Increase support for agencies that provide financing to encourage U.S. commercial engagement overseas, mitigate investment risks, and generate a profit for American taxpayers; and
6. Engage the African diaspora community in the United States to strengthen economic ties.
- Executive summary to: Embracing Africa’s economic potential: Recommendations for strengthening trade relationships between the United States and sub-saharan Africa, by US Senator Chris Coons, Chair, Senate Foreign Relations Subcommittee on African Affairs, 7 March 2013. The report, 18 pages, can be accessed here.