TRALAC - Trade Law Centre

Africa awakes and is open for business

Thursday, 30 June 2011

Source: The Australian (Australia)

Poverty and hunger are still widespread problems, but Africa's growing middle class is creating business and investment opportunities that are among the best in the world. With the right trade policy and development assistance, we can unlock the potential of a thriving private sector and lift millions from poverty.

Six of the 10 fastest-growing economies of the past decade were in sub-Saharan Africa, The Economist recently found. And over the next five years the average African economy will outpace its Asian counterpart. From telecom to financial services, extractive industries and consumer goods, Africa is open for business.

Yet challenges remain steep, from export tariffs that stunt development to the dismal shape of roads, electricity grids and other infrastructure that prevents businesses from getting their goods to market. Transport costs in Africa can be 77 per cent of the value of the exports.

This is where smart development assistance must play a role. Two excellent examples that work hand-in-glove are the African Growth and Opportunity Act and the Millennium Challenge Corporation, both in the US.

Enacted in 2000, AGOA reduces the tariffs that African exporters face in US markets while providing technical assistance to help them take advantage of the legislation. Last year, the initiative brought in $US44 billion ($42.1bn) in African export earnings, an increase of more than 438 per cent since its inception in 2001, according to the US International Trade Commission.

Overall, calculates former assistant US trade representative for Africa Rosa Whitaker, the effort has created more than 300,000 African jobs.

While that law opens the US market, the Millennium Challenge Corporation helps African exporters take advantage of it. In partnership with African governments, the corporation funds projects that build trade capacity, from irrigation systems to airports and seaports for shipping cargo. To qualify for financing, partner countries must meet international standards for good governance, invest in their citizens, and ensure economic freedom. This means making business-friendly policy reforms, such as fighting corruption and eliminating the red tape that suffocates entrepreneurship.

Trade and development policies often conflict, but in this case the US government and the Millennium Challenge Corporation have devised a coherent approach to foster the domestic and international conditions that will enable Africa's private sector to thrive.

Now we should be working to expand opportunities for AGOA-approved goods in sectors where Africa has significant potential for growth, such as agriculture. Africa accounts for 60 per cent of the world's arable but uncultivated land, and although 70 per cent of Africans are involved in agriculture the continent still faces considerable hunger and malnutrition.

The US is doing its part by investing in agriculture projects through the Millennium Challenge Corporation. But, together with African governments and businesses, more needs to be done to build the production capacity of African farmers and improve their links with US markets.

The US has always given generously to the cause of poverty reduction in Africa, but moral leadership is not the only interest at stake. Other nations seeking to gain a foothold in emerging African markets are investing heavily in their development. Now is not the time to back away. The economic future and national security of the US are compelling reasons to invest in Africa's growth.

Daniel Yohannes is chief executive of the Millennium Challenge Corporation. Mo Ibrahim is chairman of the Mo Ibrahim Foundation and a board member of the global anti-poverty advocacy group ONE




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