U.S. Govt Bids to Boost Business With Africa

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Hillary Clinton photo

Hillary Clinton is on a recent 7 nation tour of Africa

Three years after President Obama visited Ghana on his first state trip to Africa, amid rising criticism over the lack of coherent policy towards the continent, the White House has launched a new strategy for Africa. “America believes in Africa as a region of growing opportunity and promise,” the President’s introduction states in characteristically high oratory. “We believe that Africa can be the world’s next major economic success story.”

How? The idea is to bring business to the fore, elevating “two efforts that will be critical to the future of Africa: strengthening democratic institutions and boosting… economic growth, including through trade and investment.”

That is much needed. Since China surpassed the US as Africa’s largest trading partner in 2009, the US’s commercial appetite for the continent has looked increasingly weak. The Department of Commerce has closed offices in Ghana, Senegal and the African Development Bank. Its Export-Import Bank continues to operate without a permanent presence in Africa. In August, Secretary of State Hillary Clinton travelled to the continent, becoming the Obama administration’s first Cabinet-level official to take a business delegation on a state visit. But a US Secretary of Commerce has not visited Africa for a decade.

The new strategy outlines a number of measures to boost US-Africa ties, including a focus on regional integration. “We are focusing on concrete, ‘building block’ measures on which we can deepen our relationship, beginning with discussion of a possible regional investment treaty to attract foreign investment, and an agreement on trade facilitation to foster imports, exports, and increased regional trade,” an official with the US’s International Trade Administration explains.

Within Africa, the US will also support governments on issues including economic governance. In the US propositions look thinner, but include a promise by the White House to develop a ‘Doing Business in Africa Campaign’, to help American companies invest in and trade with Africa. The Department of Commerce, through its chairmanship of the Trade Promotion Coordinating Committee, is organising that campaign.

“The Department of Commerce is actively reaching out to our public and private partners to work on ways to encourage further commercial engagement throughout Africa,” says Francisco Sánchez, undersecretary of commerce for international trade.

Harmonising government support for companies looking to invest in Africa has proved difficult, and officials argue that Commerce’s leadership will ensure a “whole of government approach”, providing more ready sources of capital by coordinating participation by the TPCC’s 20 agency partners. Those include the Trade and Development Agency, Export-Import Bank and The Overseas Private Investment Corporation.

The strategy also outlines plans to extend the African Growth and Opportunity Act – something that would require exploring ways to update and improve the programme when it expires in 2015. Agoa is the cornerstone of US commercial engagement with Africa, offering trade incentives to countries seen to be democratising and opening markets. The programme has seen some success and is credited with creating more than 300,000 direct jobs in Africa since its inception a decade ago.

The momentum behind the new policy is encouraging, says Witney Schneidman, a fellow at the Brookings Institution, and former deputy assistant secretary for African affairs at the State Department. “There are clearly elements within the administration that want to give a higher priority to Africa and I think for the first time we’ve seen a real recognition that the US needs to do more to promote US trade and investment,” he argues.

But not everyone is impressed. Critics argue that the policy offers little by way of new initiatives, suggesting minimal political will. “The strategy is more a compilation of what already exists…. It is an attempt to present coherence in the rationale of all programmes, and to deflect a rising criticism that there is no coherent policy towards Africa,” says Stephen Hayes, president and CEO of The Corporate Council on Africa, a Washington-based trade association.

“There is a lack of financing, a lack of genuine partnerships between the public and private sector, and generally an inadequate political and bureaucratic framework that would enable far greater US investment in Africa… The reality is that we need a far more comprehensive policy towards Africa.”

One trade expert said that the new policy was likely motivated by a need to “add substance” to annual Agoa meetings, which were held in Zambia in June, because otherwise they were coming “empty handed”.

US inaction hits African jobs

The strategy may be heavy on rhetoric, but when it comes to the finer details of legislating, there appears to be less momentum.

This summer, stalling over the extension of a preferential trade agreement for African apparel exports – one of Agoa’s single most important provisions – undid important gains made under the act.

The success of Agoa is closely tied to the crucial Third Country Fabric provision, which was set to expire in September 2012. The benefit allows apparel producers in Agoa-eligible countries to import raw fabric from other regions of the world, assemble them into garments and export them to the US duty-free. On its own the provision has helped retailers reduce their costs and diversify supply chains, generating hundreds of thousands of jobs in Africa’s textiles sector.

Swift passage of legislation to extend the benefit was necessary to shore up those gains, but electoral year dysfunction and congressional gridlock stymied its passing. After much stalling, Congress extended the act in August, to September 2015, adding South Sudan to the list of Agoa beneficiaries. That was good news, but by that time months of inefficiency had already caused apparel buyers to move production out of Agoa-beneficiary countries.

African apparel-producing countries have experienced a 30 percent drop in new orders since January, according to a coalition of African manufacturers and US importers that had lobbied Congress on the legislation. In Lesotho 3,300 workers had been laid off by June. In Kenya, another 2,000 have lost their jobs.

“We’ve been telling Congress for two years that we cannot wait until September to renew this provision, because if we do, the industry will have been decimated in the meantime and it will take years for it to recover,” says Paul Ryberg, president of the African Coalition for Trade. “There will be a serious lead time to replace lost orders with new business.”

One letter written to Congress by a group of trade associations and businesses said the delay sent the “wrong message” to African countries. “A perception among African governments that Congress is abandoning Africa is worrisome to many US investors, who must rely on the goodwill of these governments as American companies seeking market access in Africa and competing against companies from other regions,” it read. Critics fear that Agoa as a whole will be subject to similar delays as the September 2015 deadline approaches.

Legislating for a ‘real’ strategy

Despite these concerns, momentum behind boosting US exports to Africa may be growing, with the area constituting a key focus in the new strategy. This year has seen the introduction of the ‘Increasing American Jobs Through Greater Exports to Africa Act’ to the US House and Senate. The most significant US legislation on Africa since Agoa, the bill aims to triple exports to Africa, in turn helping job creation at home and improving the US’s competitiveness on the continent. Notably, its success would demand establishing or maintaining more Africa-based Ex-Im or Commerce trade staff to support US businesses.

“The fact is that you don’t need legislation to do what the bill is calling for – which is to develop a real strategy. But its introduction signals concern in Congress and in the Senate that the administration is ignoring the growing competition in Africa, and is missing out,” argues Brookings’ Mr Schneidman.

Reassuringly, Ex-Im has already approved a record level of financing of $1.5bn for exports to Africa in the first three quarters of 2012; surpassing the total $1.4bn it provided in 2011. That increase was driven by export growth in machinery, vehicles and parts, commodities and aircraft, with Nigeria and South Africa representing top markets for US exports, Ex-Im said in a statement.

“Proportionately, Ex-Im Bank supports more US exports to Africa than it does to the world at large. Last year, we financed 6.7 percent of US exports to this region… We are on target to increase that percentage,” Ex-Im Bank chairman and president Fred P. Hochberg said.

Senator Dick Durbin, who drafted the US Exports to Africa bill, hopes that it will shift US mentality from aid to business, increasing America’s competitiveness in Africa versus developing countries such as China, India and Turkey. China recently boosted its relationship with Africa, announcing $20bn in loans over the next three years.

“Increasingly I am hearing: ‘The US has given up on Africa as a market,’” Senator Durbin said at the bill’s introduction. “While the US does important work investing in people through education and healthcare programmes, China and other nations are helping their industries develop infrastructure and expanding markets for their goods. While we’re building institutions, China and others are building markets and we’re being left behind.”