Ioannis Gatsiounis

Attracting US Investment in Africa*

In Uncategorized on April 5, 2012 at 6:19 am

April 4, 2012

KAMPALA – The US-China rivalry in Africa has basically boiled down to aid versus trade.

The US has won unmatched influence through its cash donations, on which African governments depend to fight everything from malaria to terrorism.

China has dramatically countered through trade, surpassing the US to become the continent’s largest trading partner two years ago.

But a string of moves capped by the introduction of a new trade bill in the House and Senate last week indicate that Washington is now playing to win the trade war too.

Within the last month, US officials led a trade mission to Africa to explore energy prospects. Back home they hosted dozens of African business leaders and slotted a follow-up meeting for the summer in Cincinnati. The bi-partisan bill, known as H.R 4221, seeks to boost American exports to Africa by 200 percent over the next decade while adding jobs back home.

The moves are intended not only to counter China but take advantage of an improving economic climate. The IMF predicts that seven of the 10 fastest growing economies in the next decade will be African. Africa is more stable than any time since independence and home to the world’s fastest growing middle class. China has joined traditional donors like the World Bank to improve the continent’s infrastructure and with it prospects for cross-border trade and foreign investment.

But how bright are Africa ’s economic prospects?

Washington, motivated by political rivalry and convinced that greater economic involvement will extend its edge, has reason to view the glass as half-full.

The reality is Africa remains economically challenged. Industry is in short supply. Poverty is so endemic that the continent would need a long-term growth rate of 7% to reduce current levels. Infrastructural deficits can still spell endless delays. Endemic corruption is hampering everything from basic health to the emergence skills development. Africa ’s middle class still accounts for just 2% of the population.

In large respect Africa remains high-risk, low-return. China got a taste of this bitter reality in January when rebel forces in Sudan kidnapped 29 workers. From Nigeria to Angola projects have stalled because of funding or legal disputes with the host country.

Washington, alarmed by Chinese “inroads” (to borrow the media’s catchphrase), is urging the US private sector to “get over its fears and get involved,” as Assistant Secretary of State for African Affairs Johnnie Carson put it. ( China is in fact mentioned 12 times in the bill’s one-page summary.)

Efforts are being tailored to US comparative advantages, in areas like energy, infrastructure, agriculture, telecommunications and water. The bill seeks to leverage America ’s sizeable African diaspora community, which is active in small- and medium-sized enterprises, an area that accounts for 60 percent of US exports. And as Africa stabilizes and purchasing power grows, demand for American expertise and quality is likely to grow. African leaders are urging greater US involvement, and America ’s soft power remains strong in many African countries, which can’t be said of China .

But business ventures are about choices; they can’t occur everywhere at once. And two big reasons China is in Africa is to secure resources for the world’s fastest growing economy; and because Chinese companies are at a disadvantage in stable, prosperous places where there is more of a demand for innovation and quality. In other words one should not equate China ’s economic involvement in Africa as a zero-sum game advanced at America ’s expense.

US companies enter Africa where and when they see opportunity. Indeed the US is the leading developer and producer of oil on the continent, and heavy-hitters like Wal-Mart, Ford, and KFC are expanding.

Washington may be right to anticipate growing prospects and to help facilitate them, but the extent to which America ’s private sector invests in Africa will be determined less by promptings from Washington and more by the real arbiter of opportunity, market conditions.

* A slightly different version of this entry ran in the Wall Street Journal last week.


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