Opinion: Foreign investment is Africa's best shot at growth, but its share is still pitiful

Opinion: Foreign investment is Africa's best shot at growth, but its share is still pitiful
Published date:
Saturday, 22 January 2022
Author:
Bob Wekesa
Source:

US Secretary of State Anthony Blinken's visit to Kenya, Nigeria and Senegal in November 2021 was a rare event for an administration's first year, cautiously signalling the US's aim to reconnect with Africa and to recover confidence in the former's commitment to democracy.

With various promising moves in the pipeline, such as the appointment of a programme head for the Prosper Africa initiative, there may be movement with the African development agenda, especially in terms of foreign direct investment (FDI).

This is crucial, because as Dennis Matanda, Chief Executive Officer of Morgenthau Stirling in Washington DC, argues, "the first thing Africa should do is recognise that foreign direct investment is more effective than remittances and overseas development assistance at generating sizeable economic growth and development."

Because the US is still the biggest source of global investment (USD 6.15 trillion in 2020), African countries must change their strategy to attract foreign capital in the next critical Biden/Harris years.

The continent's current strategy to attract money is not working. In the last 20 years, the 55 African Union member states drew less than five percent of global FDI and only 0.8 percent (about USD 47 billion) of US direct investment abroad.

This is an anathema in a time when the US private equity and venture capital markets raised over USD 790 billion in 2021 alone.

Africa, home to 1.3-billion people, and with trade valued at around USD 4.3 trillion, can open its market up, cut trade cost and become the next global trade and investment frontier, argues Professor Gilbert Khadiagala, Director of the African Centre for the Study of the United States at Wits University.

There are several ways in which it can do this.

Firstly, the Africa Continental Free Trade Area (AfCFTA) is probably the continent's most important trade facilitation mechanism. Prioritising AfCFTA will see more investment in Africa, particularly from the United States.

Just as Biden was being inaugurated in early 2021, the first shipment under AfCFTA departed from Ghana. The ship bound for Guinea and South Africa symbolised a new era: the rapid implementation of a free trade agreement to create a more inclusive and prosperous future for Africa.

Secondly, Africa can also be crucial in pushing for a permanent African Growth and Opportunity Act (AGOA).

For the past 20 years, African countries have not played enough of a role in ensuring that African Growth and Opportunity Act (AGOA) serves their interests.

AGOA is not a treaty per se but is US law passed by Congress that makes provisions for duty free access to US markets for thousands of African exports, if these nations meet certain requirements, such as fair trade. It is therefore important for Africans in the second year of the Biden administration to prevent AGOA from expiring in 2025.  

AGOA's imminent expiration means the continent must formulate a new and comprehensive trade and export policy, which should be at the top of the African agenda, especially since experience demonstrates bilateral and multilateral trade pacts usually take more than five years to negotiate.

AGOA, or even a post-AGOA strategy, could become the core for a comprehensive negotiating stance by African states. Crucially, it can be Africa's agenda for future dealings with the US, regardless of the party in power in that country.

The third area in which the continent must focus its energy is in changing negative perceptions that discourage investment. African countries must counter the narrative that there are few opportunities for US investors on the continent. If Africa wants to obtain seed funding and private equity money, we must ramp up efforts to challenge negative narratives around stability, risk, economic growth, and infrastructure.

No public affairs of lobby firm in Washington will change the erroneous narrative unless Africans do it themselves. Once this changes, African countries will see a significant number of doors opening to engage on trade, investment, aid, remittances and tourism.

Bob Wekesa is Deputy Director, The African Centre for the Study of the United States, Wits University. Views are the author's own. 

View related news articles

The 'key to unlocking Africa's potential'

Africa is on the cusp of an economic transformation. By 2050, consumer and business spending on the continent is expected to reach roughly $16.1 trillion. The coming boom offers tremendous opportunities for global businesses – especially US companies looking for new markets. But unless African policymakers remove existing barriers to regional trade and investment, the continent’s economy will struggle to reach its true potential. Two...

02 October 2022

EAC States challenged on trade agreements

The East African Community (EAC) partner states have been challenged to increase their volume of transactions under regional and international trade agreements. The region’s private sector trade block, East Africa Business Council, said it is imperative for the region to take advantage of opportunities such as the African Continental Free Trade Area (AfCFTA), African Growth and Opportunity Act (AGOA), Economic partnership agreement, to...

23 August 2022

AFCFTA and AGOA are opportunities for African diaspora – BHF Coordinator

The maiden edition of the Black History Festival (BHF) in USA which came off from February 21 to 28 in Washington DC has become an eye-opener for African diaspora about the scads of opportunities that exist in Africa, with the African Continental Free Trade Area (AFCFTA) and African Growth and Opportunity Act (AGOA) as windows. Coordinator for BHF, Stephen Selassie Asuo said “Recently, the commencement of the AFCTA and the AGOA has opened...

16 March 2022

US seeks more investment opportunities in Africa

The US government is exploring ways to expand trade and investment opportunities in Africa, in a bid to scramble for the control of the continent’s raw materials with other world’s powerful nations such as China and Russia. The US Deputy Assistant Secretary of State Akunna Cook said the country has yet to deepen its presence in Africa, which has a population of about 1.3 billion people.  “We have been behind the curve for...

25 February 2022

US-Africa trade policy faces future uncertainties

US trade policy toward Africa is facing a conundrum. Much has changed in the two decades since the African Growth and Opportunity Act (AGOA) set the framework for trade between the world's largest economy and its poorest continent. Many observers advocate new policies to increase U.S.-Africa trade and investment, especially with Agoa expiring in 2025. Yet the policy path is less clear than when Agoa became law, and the prospects for a...

21 September 2021

'The renewal: US-Africa relationship'

In his first allocution to African leaders at the virtual African Union Summit in February, recently elected United States President, Joe Biden, reiterated his administration’s commitment to rebuilding partnerships with Africa and re-engaging with international institutions such as the African Union. Biden set out his foreign policy priorities, pointing towards multilateralism and a healthier US-Africa relationship. Within days of his...

13 April 2021

'US-Africa trade will be positively impacted by AfCFTA' - CCA

The Corporate Council on Africa (CCA) is the leading business association focused solely on promoting business and investment between the United States and the African continent. In this time of pandemic, both the continent and the US are looking for ways to strengthen their relationship.  The CCA works with governments, multilateral groups and businesses to improve Africa’s trade and investment climate, and to raise its profile for...

30 July 2020

COVID-19: Africa and the United States to remain key partners, says President Kagame

A four-day leaders forum hosted by the Corporate Council on Africa (CCA) opened Tuesday with Rwandan President Paul Kagame saying Africa and the United States will remain key trade and investment partners post the crippling coronavirus pandemic. Mr. Kagame, in opening remarks to the forum on the theme Resilient U.S.-Africa Business Engagement to Drive Post COVID-19 Recovery, said; “The world is full of uncertainties right now but there...

24 June 2020

Africa gearing up to finalize trade bloc while US eyes agreement with Kenya [Cal Chamber]

Trade and investment opportunities in Africa are in the spotlight this summer as the African nations prepare for final implementation of their free trade area and the United States looks toward the start of discussions about a free trade agreement with Kenya. The California Chamber of Commerce is a longtime supporter of stable and sustainable economic growth and development in sub-Saharan Africa African Continental Free Trade Area The...

23 June 2020

Kenya risks AU wrath as it seeks solo deal with America

Kenya has broken ranks with other African countries as it pushes for a bilateral trade agreement with the US. The move, analysts reckon, could cause a diplomatic headache for East Africa’s leading economy. President Uhuru Kenyatta is set to fly to Washington next week where, according to a Bloomberg report, the two countries will announce negotiations on a trade pact that will form a model for other African countries. Foreign Affairs...

31 January 2020