U.S. Beefs Up Int’l Trade With “Doing Business In Africa” Campaign

Doing Business With Africa campaignMany African countries complained during the recent U.S. Presidential election that President Obama had not paid enough attention to the continent. Among the gripes was that the United States focused too much on charitable efforts when Africa desires and demands investment and business opportunities. Other countries have taken early note of Africa?s up-and-coming economic status and have invested heavily in various African nations. China, Brazil and Japan have a growing presence in Africa, a presence that only appears to be getting bigger and bigger. Now the continent is craving a larger presence from America.

Obama seems to have heard the call. Now the Administration has announced the Doing Business in Africa campaign, “The campaign is to help American businesses identify opportunities for United States commercial and trade relationships in Africa. On June 14, 2012, President Barack Obama issued the U.S. Strategy Toward Sub-Saharan Africa, under which the United States will pursue four objectives in the region,” according to a Commerce Department press release. “These include strengthening democratic institutions; spurring economic growth, trade and investment; advancing peace and security, and promoting opportunity and development. This campaign is part of the strategy to spur economic growth, trade, and investment.”

Still, the Administration points to past achievements to say there has been an increased effort since Obama took office. Among the achievements:

??? ???? U.S. Strategy Toward Sub-Saharan Africa ?issued by Obama in early 2012;
??? ???? efforts that “strengthened democratic institutions and challenged leaders whose actions threaten peaceful political transitions?;
??? ???? developed “partnerships that promote food security, increase resilience to climate change, and empower communities that are responding to HIV/AIDS, malaria, and other health threats”;
??? ???? efforts like the New Alliance for Food Security and Nutrition, which aims to lift 50 million Africans out of poverty in the next decade;
??? ???? the National Export Initiative, under which the U.S. and Sub-Saharan Africa reached $95 billion in two-way trade in 2011–an increase of 16 percent from 2010; and
??? ???? the African Growth and Opportunity Act (AGOA), which supports the “flow of African goods to the U.S.

More needed to be done. Many people in Africa as well as international trade observers say it?s about time for the Doing Business in Africa campaign. ?This policy will definitely increase U.S. business investment in Africa. That continent contains 6 of the 10 fastest growing countries in the world currently. Also, according to the International Monetary Fund, growth in the region is expected to be at 5% to 6% for each of the next two years,? notes Andrew Schrage of international finance blog and guide Money Crashers. ?As part of the program, an African Global Business Summit Series will begin next year along with an International Buyer Program, which will bring buyer delegations from Africa to the United States. So the program seems to be much more than just a press release. It’s organized and targeted, and the Obama administration is providing financial assistance as well, especially for small and medium-sized businesses here in the U.S. interested in investing and developing trade relationships with African companies.?

Bhaskar Chakravorti, senior associate dean of International Business and Finance at the Fletcher School, Tufts University agrees, but adds the campaign is a long time coming. ?Less than 3% of U.S. global trade volume is with Africa. So any initiative is welcome. The trade with Africa had peaked in 2008 and since then the Obama administration has not done much by way of a systematic outreach towards Africa until June. In June, they announced a new “strategy” towards Sub-Saharan Africa; the newly launched “Doing Business in Africa” program is a follow-up to that strategy,? explains Chakravorti. ?The program will essentially help identify trade and commercial opportunities in Africa and facilitate trade promotion and financing through OPIC, the Ex-Im Bank and USTA. Much of the financing will focus on the clean energy sector. This is all a good start ? but I would say that it is too little and a bit late.?

According to Chakravorti, other powerhouse countries have beat the U.S. to the punch. ?China-Africa trade was $127 billion last year, while U.S.-Africa trade was $94 billion. ?The U.S. should be doing more, not just in terms of getting the numbers up (our GDP is still larger than that of China, for now), but engaging in key sectors besides energy and being active in the other areas that were pillars of the strategy that was announced in June,? Chakravorti points out. ?These include: strengthening democratic institutions, advancing peace and security and promoting economic development. In the absence of these other elements, I am afraid that the fast growth of many African countries is purely based on extractive industries and there is very little diversification of the economies in addition to the constant political instability, poor governance and rampant corruption.?

Without attention to these other sectors, says Chakravorti, the new campaign will not achieve much. ?Unfortunately, without the other elements also being addressed, I fear that there is going to be very little by way of substantial progress in the economic well being of the people and businesses in Africa and thereby a rather limited range of opportunities for American businesses to pursue,? he theorizes. ?Right now, China is Africa’s primary trading partner; the Chinese are the last ones to promote democratic institutions. ?This is where the U.S. needs to do more?Net, net, I think the Obama administration needs to do an ‘Africa pivot’ following on the Asia pivot that we have heard about in recent months.?

Schrage add, too, that America lacked foresight when dealing with Africa. ?The fact of the matter is that the United States simply failed to catch on to the growing economic opportunities in Africa. In the past, Africa had a reputation as being an area of the world dominated by poverty, famine, war, and poor infrastructure, but this just isn’t the case anymore,? he says. ?Considering the fact that other nations have long been enjoying the economic benefit of investing in Africa, the U.S. should absolutely push forward with this program. With a trade deficit that’s now well over $40 billion, investing more in Africa is a must for this country.?

But Schrage says he feels America should not have the same sort of financial engagement in Africa as does China. While the investment by China in Africa is certainly significant, it is also very flawed. Most of it isn’t even considered investing, as it is based on loans rather than actual investment,? he says. ?Also, much of their investment goes to countries that have dictatorial leaders. Whether their investment truly promotes economic growth in Africa is very debatable. By the U.S. getting more involved, we can ensure that the African nations themselves will benefit as well.?

Chakravorti notes that the U.S. should shy away from various parts of Africa, instead of pushing forward in those regions as the U.S. has done. ?Congo poses many risks for American investment. First of all, according to the World Bank, Congo ranks 181 out of 185 countries on its “Ease of Doing Business” ranking for 2013. ?The U.S. has interest in the country’s minerals, but the opportunity of the Congo is under-utilized (only $772 million in U.S.-Congo trade last year out of total of $94 with all of sub-Saharan Africa) because of the political crisis and the civil war that has torn this country apart,? says Chakravorti. ?Millions of helpless people are dying and are being displaced in Congo but the U.S. has no interest in or even an understanding of the political situation there. Our unwillingness to engage and help build local institutions, governance systems, a rule of law and civil society will inherently limit the potential to do substantial trade.?

Another possible troubling move, notes Chakravorti, is the U.S. ties to Rwanda. ?The U.S. is allied with Rwanda and the Rwandan administration is carrying out a proxy war in Congo ? so from a diplomatic standpoint we are not in a good position to go in as objective do-gooders,? he states. ?Most of the pressures that the U.S. brings to bear are through targeted sanctions or the private sector that takes proactive steps towards auditing their supply chains to rid them of conflict minerals from Congo. All this is important and may help nudge the Congo towards better governance in its own self interest, but it does come at a cost technically. Most importantly, U.S. officials and businesses know very little about how to deal with countries that were former European colonies and they find the history and the current political and social divisions completely overwhelming. ?Because of our lack of a historical connection, we have no leverage among the different factions in Congo ? so the philosophy seems to be: why bother? Without an understanding of the context, you cannot fix it or work within it.?

And while the Congo is mineral-rich, U.S. involvement could be a misstep. ?According to the CIA, the Congo was the 30th fastest growing economy in the world, with 6.5% GDP growth. ?But this is not quality growth. ?It does not lead to peace, development or the emergence of a middle class?As a matter of fact, people in the Congo are getting killed to accomplish that growth rate,? Chakravorti stresses. ?Can something like the sanctions on South Africa that ended apartheid or the turnaround of Rwanda happen in the Congo? ?I don?t see any immediate signs of it. ?It may happen if there is enough killing so that we cannot avert our eyes any more or the world supplies of coltan or other essential minerals start getting endangered. Then the global community might act. Until then, it is in everyone’s self interest, including the U.S. private sector, to avoid getting involved in the messy and broken institutions in the Congo.?