Africa: U.S. Should Be Backing Real Economic Transformation

26 September 2014
guest column

The focus on business at the U.S.-Africa Leadership Summit last month was a welcome pointer for how to recalibrate policy and bring tangible economic benefits in trade and investment for both Africa and the United States.

Recognizing the symbolic backdrop of the summit – President Obama is of African origin, Africa supplied much of the labor that built America's economy in the 19th century, and the continent is a place of opportunity in the global economy - the time has come for the relationship to be focused on the things that really matter.

Leading that most-essential list are infrastructure, industrialization, venture capital for entrepreneurship, and the development of human capital.

As demonstrated by Africa's experience with China, which has clearly outflanked Western nations in obtaining an economic toehold, the continent's leaders need to understand that the economic salvation of their continent rests far more with them than with foreign partners

The continent must negotiate deals that protect and advance their countries' interests. Such deals will bring far greater benefits for the continent and for the United States as well.

Beyond a strategic, but narrow focus on Africa's natural resources, America is a relative late-comer to Africa's opportunity. For decades, Washington focused its relationship with Africa on aid. But the outcomes of a half-century of development aid for the continent have been disappointing – at least for African countries.

Poverty Must Be Addressed

From an 'Africa Rising' industry of enthusiasts, we hear about the marked decline in wars across the continent, its improved macroeconomic stability, rising GDP growth numbers and increased global economic interest - largely a result of the devastating impact of the global financial crisis on more mature markets. Nevertheless, Africa remains predominantly poor.

According to the 2014 report of the United Nations Development Program's Human Development Index, while countries such as Rwanda, Ethiopia and Nigeria have made some progress in the rankings, 35 out of 43 countries rated as 'low' are in Africa. Across the continent, 585 million people – 72 per cent of the population –live in poverty or at risk of it.

Population growth without accompanying levels of job creation is increasing poverty because social security and other safety nets do not exist. No real strategy to deal with this challenge is as yet evident on a wide scale in the continent.

Africa has the highest rates of income inequality in the world, a risk that is global and afflicts the United States as well.

The Africa Growth and Opportunity Act (AGOA), passed by the U.S. Congress under the presidency of Bill Clinton in 2000, has also had limited impact. America's total trade with sub-Saharan Africawas $63.3 billion in 2013, down by 12 percent, and the continent's exports to the United States declined to $39.3 billion.

Although oil accounts for 82 per cent of America's AGOA imports from Africa, that focus is shifting. Large reservoirs of state oil and gas that now have made the United States the world's largest oil producer have resulted in a corresponding decline in American oil imports from African countries such as Nigeria, which was the biggest beneficiary of AGOA.

The structural weakness of the AGOA thus becomes apparent, compounded by the absence of diversification and value-added products in Africa's exports under the trade and investment program. Of the over 6,000 products that African countries can export duty-free under the initiative, just 300 products have benefited from the scheme. And the sparseness of U.S. trade diplomats on the ground in African countries has not helped deepen economic relations.

High quality foreign direct investment is an essential path to grow U.S.-Africa economic relations. The continent's economies are not structurally diversified or mature enough to take adequate advantage of initiatives such as the well-intended AGOA. But African countries offer investment opportunities that can help shift the structures of those economies to become more productive.

And, despite an exaggerated picture of the risk of investing in African that hold many businesses back, returns on investment in Africa are about the best in the world.

Essentials for Expanded Economic Ties

The key to achieving this is for African leaders to be focused on the kinds of investment through which American businesses can enter the African market with mutual benefit. The three areas in which such investments can happen, with strong impact, are electric power infrastructure, venture capital funds, and the all-important need for an educated and skilled workforce to support industrial manufacturing economies in Africa.

President Obama's Power Africa Initiative is an excellent strategic direction. But the vision needs to be far more ambitious – the surface of Africa's huge energy needs have barely been scratched, and must be met if Africa is to prosper.

The market for more ambitious investments clearly exists, in particular in large-population countries such as Nigeria, Ethiopia and Kenya.

Venture capital is largely absent in Africa. It is necessary to grow the continent's small and medium-sized businesses that face structural obstacles to access to capital, creating a paradox in which Africa has increasingly adopted capitalist free markets that are hobbled by a lack of access to affordable capital.

And there is a critical need for investment in educational institutions and skills-building for technical knowledge in areas such as engineering, construction and manufacturing processes.

General Electric, the Fortune 500 behemoth, is now making more of its profits from emerging markets, including an increasing presence in Africa. The company in 2013 began construction of a $1billion manufacturing plant, together with as $1.2 million training center that will train Nigerian factory workers in these critical skills.

This is the tripod on which Africa's economic transformation will rest. Making these three areas the focus of U.S.-Africa investment ties going forward will have made President Obama's meeting with his African counterparts far more than just another summit. It's a win-win proposition.

Kingsley Chiedu Moghalu, deputy governor of the Central Bank of Nigeria, is the author of Emerging Africa: How the Global Economy's 'Last Frontier' Can Prosper and Matter (Penguin, 2014)

More From: allAfrica

Don't Miss

AllAfrica publishes around 800 reports a day from more than 130 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.