TRALAC - Trade Law Centre

US seeks greater economic role in Africa

Thursday, 09 June 2011

Source: Wall Street Journal (US)

U.S. officials and business leaders have gathered here for a bout of soul-searching on how to lift trade and investment in Africa, underlining a broad recognition that American companies are trailing those from China and India in tapping the continent's economic opportunities.

The meeting in Zambia has drawn one of the largest U.S. delegations to Africa in years. It includes U.S. Trade Representative Ron Kirk and U.S. Secretary of State Hillary Clinton, who arrives in the capital Lusaka on Friday. She is the first U.S. secretary of state to visit Zambia in 30 years.

Mr. Kirk said he was "sobered by the reality that we are just at the beginning" of a broader economic ties with Africa.

The focus of the meeting is the African Growth and Opportunities Act, or Agoa, an 11-year-old piece of U.S. legislation that provides preferential access to the American market for more than 1,800 African products. It covers 37 countries in sub-Saharan Africa, with a handful of others disqualified because of coups and corruption.

Many participants say the U.S. needs a new approach to a continent that is projected to grow faster than any other global region over the next five years. They say trade assistance, along with humanitarian aid, together aren't enough to tap a market with a billion potential consumers.

"America has more medical doctors and Ph.D.s here than businessmen," says Greg Marchand, who runs a telecommunications and consulting company in Zambia called Gizmos Solutions Ltd. "And we wonder why we aren't doing a lot of business."

The U.S. remains the top donor to Africa, disbursing $7.6 billion in 2009, according to the Organization for Economic Cooperation and Development.

China isn't a member of the OECD, and doesn't provide detailed breakdowns of aid and investment to Africa. But in 2009, China became Africa's largest trade partner. In the first 11 months of last year, China's trade with Africa amounted to $114.81 billion, according to the Chinese government's White Paper on the topic. U.S. trade with Africa for the period reached $103 billion, according to the U.S. Census Bureau.

China has tied much of its trade and investment to Africa with preferential loan deals, often aimed at securing supplies of oil, gas and minerals. Top-ranking Chinese officials regularly visit African countries to cement these agreements.

"The goal of China is mercantilist; they do what they need to do to get access to natural resources," says Paul Ryberg, the Washington-based president for the African Coalition for Trade, which represents African companies in the U.S. The centerpiece of U.S. economic engagement, Agoa, says Mr. Ryberg "is economic development, creation of jobs and the creation of a middle class to buy our products."

But while Agoa boosted African exports to the U.S.—10 times from its inception to 2008—it has failed to broaden significantly the trade relationship. Energy exports account for about 90% of sub-Saharan African trade to the U.S., according to a study published last month by the Brookings Institution, a Washington think tank.

That type of trade relationship is seen as too narrow to seize new opportunities linked to Africa's accelerating economic growth and new consumers.

The International Monetary Fund predicts sub-Saharan Africa—a collection of 47 countries—will grow 5.5% this year and 6% in 2012. Over the next five years, the IMF predicts that average growth of sub-Saharan countries will be higher than other regions. The African Development Bank Group estimates a new consumer class on the continent of 300 million people.

Yet the continent remains burdened by political corruption and poor infrastructure—problems that ratchet up the price of goods, particularly in many landlocked countries. Most African countries rank at the bottom of the World Bank's Ease of Doing Business survey.

Companies from China, India and Brazil generally have been less daunted by such challenges. Bharti Airtel Ltd., India's largest phone company, now operates in 16 African countries, part of a dramatic expansion of Indian investment in Africa. This month, Bharti Airtel said it signed a deal with China's Huawei Technologies Co. to help manage and modernize its network in Africa.

U.S. officials say American companies, not the government, must pursue African business opportunities. In most African countries U.S. investment lags far behind American aid. In Zambia, for example, the U.S. foreign direct investment was $79 million in 2008, up 3.9% from the year before, according to USTR. Meanwhile, the U.S. Agency for International Development estimated it spent $390 million in Zambia last year, up from $300 million in 2009.

Outside Lusaka, China has invested more than $1 billion in an investment zone near the Chambishi copper belt. The zone includes 14 Chinese companies, mostly mining and equipment makers.

China's investment in Zambia hasn't been without its troubles. In March, 600 workers went on strike demanding a 50% pay increase, the latest in a long list of labor disputes. Meanwhile, Zambia's opposition politicians have accused China of taking away jobs from Zambians and subjecting their country to a new form of colonization.

At the same time, the southern African economy is showing signs of moving beyond its dependence on minerals. Lusaka's commercial real-estate market is crammed with new tenants, even as new buildings and shopping malls go up.

The 36-year old Mr. Marchand, an entrepreneur from Chicago, says he arrived in 2005 with four laptops, a printer and $100,000 to start his telecom and consulting company. The U.S. government assistance, he says, was minimal. "They issued me a passport."

At least now the U.S. government is paying attention, says Mr. Marchand, who is also the president of a new American Chamber of Commerce in Zambia. On Saturday, U.S. Secretary Clinton and U.S. Trade Representative Kirk are scheduled to attend the chamber's opening ceremony.

By Peter Wonacott

—Jackie Bischof in Johannesburg contributed to this article.




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