Africa: The New Global Crossroads

3 November 2011
document

Los Angeles — Following is the text of a lecture to the UCLA Anderson Center for Global Management.

In what may well be my last address at this great university, I want to thank the citizens of this state for having played such an important role in my intellectual development. UCLA occupies a special place in my life for opening up as it did the realization of optimism and hope which could only be dreams in my life in my hometown, Griffin, Georgia.

I want to dedicate my address to four individuals, all friends of mine who have dedicated their lives to furthering American knowledge of Africa and the continent's strategic significance to our interests: The first one is actually two: Tami Hultman and Reed Kramer; founders of allafrica.com, along with their African colleague Amadou Mahtar Ba. More than any two other Americans in my lifetime, Reed and Tami have dedicated their lives to lifting our veil of ignorance of this vast continent. The second one is our Assistant Secretary of State for Africa, Johnnie Carson, who like me was a Peace Corps Volunteer in Africa in the mid- sixties. Among African leaders, Johnnie Carson is this country's most highly respected policy maker on African Affairs; he also happens to be the most Africa experienced person to ever hold that position; the third is Steve Hayes, who more than any other American, has sought to alert our country to Africa's strategic significance to our own business and economic interests. And, finally, my late good friend Jim Coleman, whose vision and leadership created here at UCLA this country's most important center of learning about Africa.

Africa IS the emerging global crossroads. It is rich in natural and human resources, and the international competition for them is accelerating. Africa's economies are among the fastest growing in the world. Returns on investment are higher than in any other developing region.

Like China and India before it, Africa is shedding its impoverished image and attracting attention as the new emerging market for trade and investment. Yet the United States is missing multiple opportunities both to benefit from Africa's assets and to promote Africa's prosperity.

I want to examine those opportunities, while acknowledging the challenges that accompany them. And I will suggest a better way forward – one that is in the mutual interest of Africans and Americans and that ultimately contributes to global sustainability and security.

Six of the world's ten fastest growing economies over the last decade were African countries with a collective population of 300 million. This year's United Nations Human Development Report says that over the next four decades, Africa's progress in human development – the indicators that mean a better life for its people – could outpace that of every other region.

From my perspective of a half century of engagement in Africa, I have long argued that the United States cannot afford to continue to have a reactive policy, largely determined by external factors. If we don't recognize this moment in history, we will lose both market share and influence.

Africa's existing resources are likely to be dwarfed by its future ones – with perhaps three-quarters of its sub-soil reserves yet to be discovered. Nations around the world, led by India and China, are competing for access to that mineral wealth. In fact, there is ample evidence that China and India cannot sustain their own economic growth and satisfy the demands of their own burgeoning middle classes without access to Africa's untapped resources.

Standard Bank estimated earlier this year that Chinese investment in Africa could reach $50 billion by 2015, a 70% increase from 2009 – and larger than the current U.S. stake of less than $40 billion. The bank also expects China's trade with Africa to double by 2015 from the current $150 billion a year.

Despite problems in China's ties with Africa, including a lack of attention to human rights and a lack of transparency that breeds corruption, the relationship is not merely predatory. Both Chinese and Indian firms, backed by their governments, have been dangling incentives Europe used for three decades to insure access to Africa's raw materials – including development aid, concessional funding and major infrastructural investment.

Indeed my good friend Steve Hayes, CEO of the Corporate Council on Africa, on whose board I serve as Vice Chairman, on Tuesday told the Senate Foreign Relations Sub-Committee on Africa that Chinese involvement "has helped Africa perhaps more than any nation has helped Africa in any ten-year period."

Nor are China and India alone among emerging economies in being aware of Africa's promise and accelerating their Africa engagements. Brazil's imports from Africa increased more than six-fold in eight years, to $18.5 billion in 2008. Trade between Brazil and Africa totaled $20.5 billion last year.

Vale [Vahl'-ee], the world's second largest mining company – which the Boston Consulting Group says has created more value than any large firm over the past decade – is in fierce competition with Chinese enterprises for Africa's minerals. Vale expects to invest over $12 billion across sub-Saharan Africa in the next five years. Another Brazilian company, Odebrecht, has become the largest private-sector employee in Angola.

In addition, Brazil has become one of Africa's largest providers of development assistance.
This week the Bill & Melinda Gates Foundation announced a major and unprecedented partnership with the government of Brazil to increase agricultural productivity in Africa.

While the mineral assets of the northern hemisphere have largely been identified, most of Africa's are yet to be discovered. Already, Africa is known to have 40 percent of the world's gold, including 84 percent of chromium and nearly 88 percent of platinum. The continent ranks first in the global production of vanadium, cobalt, diamonds and chrome. Its iron ore reserves are enormous.

And geologists believe that Africa has large shares of the rare-earth metals necessary for the manufacture of electronic products such as smart phones and flat-screen televisions. China is hoarding its own reserves of rare-earth minerals, and it is the competition for them in central Africa that has fueled conflicts that have taken the lives of millions of civilians.

Clearly, the modern world's voracious appetite for natural resources, including oil, entails a responsibility to those who sit atop those treasures. About a third of China's oil imports are from Africa, and China's expanding economy will need much more in the future.

Africa supplies nearly a quarter of U.S. oil imports – more than from the entire Middle East. The amount is expected to rise in the future.

But Africa's potential is based on more than its mineral resources. Real GDP growth doubled over the past decade, to nearly five percent – and the International Monetary Fund projects nearly a six percent growth rate for sub-Saharan Africa next year.

The McKinsey Global Institute says Africa's expanding middle class is an attractive market. In a report called "Lions on the Move", McKinsey cited projections that Africa's agriculture, resources, and infrastructure industries could generate as much as $2.6 trillion in revenue annually by 2020 – up a trillion dollars over today.

The number of African households with discretionary income is projected to rise by 50 percent over the next 10 years, reaching 128 million. By 2030, the continents' top 18 cities could have a combined spending power of $1.3 trillion.

In a hungry world, Africa has 60% of the world's available arable land. Its unused spaces could not only grow food, but could also produce renewable resources like timber, which is already a major African export to China.

In the last decade, African telecommunication companies gained 316 million subscribers – more than the entire U.S. population. The opportunities in the sector were first exploited by African entrepreneurs, such as Mo Ibrahim, when outside investors lacked the vision to see the market potential.

As I mentioned in my opening, Africa offers a higher return on investment than any other emerging market, according to United Nations data. So why does Africa still have only five percent of the globe's foreign direct investment? And why are U.S. companies so slow to enter the market?

An often-cited reason is corruption. Transparency International says 25 of 35 sub-Saharan African countries rank high on its corruption scale. Natural resources contributed to the trend.

Nigerian oil – which accounts for 95 percent of the country's exports - institutionalized a culture of corruption that the current government is still struggling to curb. After the discovery of petroleum, the proportion of Nigerians living on less than a dollar a day reportedly rose from 30 percent to 70 percent – although the high birth rate and other factors likely contributed to the increase in poverty.

In Angola, where oil accounts for 90 percent of exports, income from oil more than doubled all the international aid flows to poor countries. Yet Angolans remain among Africa's poorest people.

And what is often called the "resource curse" has also caused instability, adding to the risk of both investment and trade relationships. The pursuit of Sierra Leone's diamonds led to appalling atrocities. We are all familiar with the grim images of that conflict.

But there's a resource-rich African nation whose story is less well known. Since independence in 1960, Botswana has consistently had one of the world's highest rates of economic growth, averaging nine percent annually. The country has exported some $2 billion a year in diamonds, gold, nickel and other resources.

Yet Botswana is rated the least corrupt country in Africa, and its standard of living resembles that of Mexico and Turkey. Former Botswana President Festus Mogae in 2008 won the coveted Mo Ibrahim Prize for African leadership and is currently the United Nations Secretary General's Special Envoy for Climate Change.

Botswana has also used its mineral wealth to diversify its economy. It welcomes foreign investment, and the financial and service sectors are now larger than mining as a share of the economy.

So natural resources aren't inevitably a curse. What makes the difference?

Oxford's Paul Collier, director of the Center for the Study of African Economies and author of The Plundered Planet, collaborated on a multi-year study that concluded, "The resource curse is confined to countries with weak governance." The policy implications of that finding are profound.

But I want to point out that African nations can grow their economies, provide scope for investment and improve the lives of their people, whether they are mineral rich or not.

Ethiopia, where I served as a member of one of the first Peace Corps groups nearly fifty years ago, and to which I have returned many times in my current role as an executive of Seacom, has made impressive gains by any standard.  In the past seven years, the Ethiopian government has channeled more than 60 percent of its expenditures on poverty-oriented sectors such as agriculture, education, health, water and road development.

In its official 2010 report on the United Nations Millennium Development Goals – aimed at halving severe poverty by 2015 – Ethiopia's Ministry of Finance and Development says the percentage of its people living under the poverty line had declined from half the population in 2005 to around 29 percent. Per capita income has more than doubled.

The MDGs set ambitious targets for progress in such indicators as ending hunger, providing universal education, attaining gender equality, combating disease and building sustainable environments. One goal, for example, is to reduce child mortality by two thirds. Ethiopia says it is on track to meet all eight goals – which would be a remarkable achievement.

It is perhaps both cause and result – a virtuous, self-perpetuating circle – that Ethiopia has maintained an average growth rate of an astonishing 11 percent over the past decade. This is well above the seven percent needed to achieve the anti-poverty targets.

Ethiopia hopes that what it calls its "pro-poor" spending policies will be seen as a best practice to emulate by other countries. But it admits to challenges in distributing the benefits of growth more equitably. And it calls for better global economic governance and for more private sector and international community participation.

So where are the missed opportunities in Africa? The answer is that they are everywhere.

Africa needs energy to sustain its growth. It needs help adapting to climate change and mitigating its effects, which are particularly severe in Africa. Its burgeoning population needs health care and food. Largely unaddressed is a looming cancer burden.

Kenya has among the world's highest potential for clean, geothermal power. But where are the investors that should be lining up to exploit that potential?

Half of Zambia's land area is suitable for large-scale agriculture but is uncultivated. The country could not only feed itself but could supply the nutrition needs of much of southern Africa.

The constitutions of Kenya and South Africa guarantee the right of access to health care and education. It will be impossible for citizens to realize those rights without large-scale private sector investments.

I could go on and on about the opportunities. The point is that they abound.

This is not to say that doing business in Africa is easy. But the BRIC countries – Brazil, Russia, India and China – appear less reluctant to let risk and challenges deter their international investments than are too many U.S. companies.

Seacom has faced daunting obstacles, from the threat of piracy while laying cable in the Indian Ocean to trying to persuade governments to provide a regulatory framework that will insure last-mile access to consumers. But the fiber Seacom has laid is transforming access to telecommunication, and the company's long-term growth prospects are strong.

The American government could play a much more effective role in making more companies comfortable with the risks inherent in Africa – as in any investment anywhere. U.S industries need African partners – as Seacom has  – who know the local scene and can pave paths.

The official Chinese presence in Africa, alongside its commercial one, is visible and growing across the continent. Indian Prime Minister Manmohan Singh personally addressed the second Indian-African Forum Summit in Addis Ababa in June, identifying Africa as a priority for Indian foreign policy, as well as for economic ties. Major initiatives were announced, including in transportation, in science and technology and in education.

And look at Brazil. After his 2003 election, President Lula visited Africa ten times, taking dozens of business leaders with him, and his administration opened 16 new embassies. His successor, President Dilma Rousseff, visited Africa last month.

In contrast, the U.S. Commercial Service, which could foster matchmaking between African and U.S. investors, decided to withdraw its Senior Commercial Officer in Senegal and close its post there – the only one in all of Francophone Africa. The Department of Commerce is shelving plans indefinitely to open an office in Angola. Less than two years after President
Obama and the First Lady visited Ghana, it decided to close its office there.

In effect, the United States is repeating the mistakes of the post-colonial period – when it largely ceded Africa policy to Africa's former colonial masters – and of the Cold War period, when its policies were organized around the aim of containing Soviet influence. In our concern about China – and even in our very legitimate national security interest in combatting terrorism – we are once again allowing others to set the agenda.

One of the painful facts is that the lack of a coherent, coordinated U.S. engagement with Africa is happening under the administration of the first American president of African ancestry. We all know that President Obama faces daunting problems and competing priorities. But for the sake of Africa – and of our own future – an aggressive engagement with Africa should be among them.

A Corporate Council on Africa working group has made recommendations that I share. They include using assistance projects to increase Africa's technical capacity; providing financial incentives for investors in Africa; supporting agribusinesses that help Africa become self-sufficient in food; increasing support for investments in health, energy and tourism; and orienting policies towards expanding job growth.

The United States administration also could do much more to recognize that long-term security is tied to addressing social ills. It could encourage investments in intra-African trade, which currently accounts for less than 10 percent of the region's imports and exports. It could back improvements in transport, which are critical to growth.

It could do more to encourage the prudent use of natural resources. It could go beyond condemning corruption, by joining the international group of officials, scholars and business leaders who, through a Natural Resource Charter initiative, are helping countries make the difficult choices over how much revenue to spend to satisfy current needs and how much to invest for the future.

Together – government, businesses, educators and civil society – we must find ways to ensure that the United States does not miss the moment to contribute to providing hope to the 40 percent of Africa's youth who are age 15 or younger. Despite the continent's progress this decade – and its vast promise – yesterday's Human Development Report pointed out that, today, the 10 countries at the bottom of its scale are in Africa.

We must help Africa to change that, because historians and demographers present persuasive evidence that much global instability can be traced to youth without prospects. We must do it because that youthful population, educated and empowered, can be an engine of growth. We must do it because climate change threatens Africa first, but will burden all of us.

But these are just examples. What is required is renewed attention and energy to both the problems and the prospects of Africa. It is the right thing to do, and it is in our national interest. The returns, financial and political, will be enormous.

Let me close with this personal reflection: for me, I see this period in Africa's post independence history as the most optimistic and promising.Africa's day has truly arrived, and as I did in the dedication page of my book, African Development Reconsidered, I would like to cite Kwame Nkrumah on the independence of Ghana (the Gold Coast):

"Doubtless we shall make mistakes as have all other nations. We are human beings and hence fallible. But we can try also to learn from the mistakes of others so that we may avoid the deepest pitfalls into which they have fallen. Moreover, the mistakes we may make will be our own mistakes, and it will be our responsibility to put them right. As long as we are ruled by others we shall lay our mistakes at their door, and our sense of responsibility will remain dulled. Freedom brings responsibilities and our experience can be enriched only by the acceptance of these responsibilities…"

Thank you

Haskell Sears Ward, senior vice-president at SEACOM, has more than 50 years of experience in international affairs. His profile on myAfrica.com includes links to previous speeches and interviews.

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