Africa the un tapped Economy

Engaging Africa

The single best strategy for engaging Africa over the long haul is renewal and expansion of the African Growth and Opportunity Act, signed by President Bill Clinton in 2000. It allows 40 countries in sub-Saharan Africa to ship products to the U.S. tariff-free.

The Africa trade agreement is, by all accounts, a success. Since 2001, African exports to the U.S. have grown by more than 500 percent, to $54 billion in 2011. The African Coalition for Trade estimates that the pact has created as many as 1.3 million jobs.

The treaty expires at the end of next year, but Obama should ask Congress to renew it now -- and to broaden the law’s impact. Currently 88 percent of what the U.S. imports under the agreement is petroleum products. To break Africa’s dependency on its extractive industries, the Brookings Institution’s proposed Africa Growth Initiative would give U.S. companies a bonus on certain investments -- a tax rate of zero on repatriated profits not derived from natural-resource removal. The idea, which could increase nonpetroleum investment by 20 percent with minimal tax-revenue losses, is worth considering.

Obama could do much more to improve trade relations. Trade Africa, one of four initiatives he announced while in Africa, focuses on an existing regional trade group, known as the East African Community, comprising Burundi, Kenya, Rwanda, Tanzania and Uganda. In five years, trade among them has doubled; over the last decade, their combined output has quadrupled, to $80 billion.

The opportunity to build on this model may arise when U.S. and African officials meet next month in Addis Ababa to assess the trade picture. They should push to drop the complex tariffs, needless checkpoints and other customs barriers that impede cross-border trade. A coffee exporter in the East African Community, for example, requires 29 days to fill out paperwork, transport the product to a port, clear customs and load it aboard a vessel -- twice as long as it takes in Brazil.

Common Market

The African continent includes 54 countries, only some of which are large enough to warrant a multinational corporation’s attention. Why not push for customs agencies that use common technology and ultimately a single customs authority for the entire region? Or why not think even bigger and open talks over a continent-wide free-trade agreement, like Europe’s early common market? 

One problem is that U.S. exporters depend on an array of government agencies for financing. There should be a single investment-finance agency under a unified trade policy. The White House should also ask Congress to give the agency multiyear authorizations, so it can better predict its own funding, and the power to make equity investments, something now denied to the Overseas Private Investment Corp. 

None of this means much unless African nations get a handle on corruption, which stifles competition and impedes fair bidding. U.S. executives point to high levels of corruption as the single biggest reason they steer clear of Africa. Obama could play a role by insisting that African countries, in exchange for U.S. assistance, adopt the Extractive Industries Transparency Initiative, which requires governments to make regular audited disclosures of their oil, gas and mining revenue. Such disclosures make it harder, though not impossible, for corrupt officials to pocket illegal payments. 

It is in the U.S.’s interest to increase trade with Africa, not only to boost American exports, but also to promote U.S. values of transparency and the rule of law. (It is an added bonus that increased trade would also improve the U.S. position on the continent to compete with China, the world’s other superpower.) It is also in Africa’s interest to increase trade with the U.S., not only to expand its burgeoning middle class, but also to help lift out of poverty the millions of sub-Saharan Africans living on $1.25 a day or less.

If Obama demonstrates a long-term commitment, and demands fair play and transparency in return, he could vastly increase the flow of private money to Africa. The lives of millions of people would improve in the bargain. 

The U.S. has seen its percentage of investment drop in Africa as countries like China, India and Brazil increase their economic clout in the region, but experts say Obama's trip and emphasis on business opportunities could help bolster America's presence.

"We shouldn't view the participation of a country like China or Brazil in Africa as a bad thing," Obama said to reporters traveling from Senegal to South Africa. "It should be a signal to us, though, that there's great opportunity there and that we cannot afford to be left on the sidelines because we're still stuck with old stereotypes about what Africa's future is going to be."

Stephen Hayes, president and CEO of the Corporate Council on Africa and an opinion writer for U.S. News & World Report, says Obama's efforts will help forge a better public-private relationship that companies are seeking when it comes to expansion into the continent.

"One of the biggest problems we've got – and one of the reasons why China and India and the other countries are doing a lot better right now – is there's more coherency between public and private cooperation towards Africa," he says. "Nevertheless, there hasn't been a lot of communication between the private sector and the public sector in the U.S. as it regards investment in Africa."

It's also hard for American companies to get loans from U.S. banks to invest there, Hayes says.

[WHISPERS: Obama Met With Protests, Anger in South Africa]

Obama said he has been working on pitching Africa as a more stable region than in the past in hopes of wooing private investment.

"This is a message I'm delivering consistently – is ensure that there's stability and good governance so that American companies can reduce some of those risks that have nothing to do with business and have to do with will they be able to get their profits out, will they have to pay a bribe, will they have to find ways to negotiate with bureaucracies endlessly," he said.

Hayes admitted other factors have been inhibiting U.S. investment in Africa, including the lack of basic infrastructure like electrical power.

"It's still a difficult place, no doubt about it," he says. "No country in Africa, including South Africa, is meeting its current power needs and without power you can't expect a lot of investment right away."

That's meant that 75 percent of American investment in Africa has been in energy, Hayes says, but that is changing.

"We're beginning to see the IT companies like Microsoft, Oracle and IBM start to enter the African market much more aggressively," he says. "The consumer products groups – Colgate, Palmolive, Proctor and Gamble and Wal-Mart – are all starting take a more aggressive stand and so are more of the agribusiness companies.

Greater investment will bring a boon to the American economy as well as locally in Africa, Hayes adds.

"We need to do it badly for the sake of our own economy and for the long term relationships with African countries or any countries will necessarily gravitate to those countries that are investing in them," he says.

It's an issue that's also building bipartisan momentum on Capitol Hill, Hayes adds, calling the president's trip important if not a little delayed in coming.

"It would have been more significant four years ago, but it's better late than never," he says. "[But] it is significant, it's already bringing attention to Africa and the economic opportunities for the American business."