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A World of Change: Competition Changes Africa’s Economic Paradigm

Jul 28, 2012 Written by  Scott Eisner, Guest Contributor

138732903The multiple crises dominating world headlines today—the Eurozone implosion, stagnating economies in the U.S. and China, Iran’s nuclear impasse, and the turmoil in the Middle East—obscure what will be remembered as one of the enduring trends of the first decades of the 21st Century: Africa’s emergence as an economic center for growth and investment.

Near-term and longer, the signs are already evident. Six out of the ten fastest growing economies in the world over the past decade are found in Sub-Saharan Africa. Looking forward, demographic trends suggest that by 2050, one in four workers in the world will be African, as the continent’s population will reach 2 billion. Compare this to China’s one in eight workers—and the buzz over China’s “untapped market”—and we can begin to see the magnitude of the opportunity at stake.

The question now is whether public policy will adapt to recognize the new realities of Africa’s emergence.

That change will begin with a shift in the paradigm that has shaped Africa policy for the past half-century. It is time to move away from a strictly aid-focused model to one of private sector-led development.

As the U.S. Chamber sees it, our challenge now is to “operationalize” the opportunities Africa affords: to develop specific strategies and mechanisms to promote U.S. business engagement throughout Africa—or risk being left behind. Because Africa’s economic evolution—and the opportunities it generates—won’t wait for U.S. policy-makers to get with the new economic program.

As I recently told members of the U.S. Congress in a hearing on African investment, the fact of the matter is, when it comes to seeing new opportunities for trade and investment in Africa, we’re not alone. Over the last 10 years investment in Africa from China, India, and Brazil have increased eight-fold. Over the same period, U.S. trade with Africa has increased by a multiple of only three.

The U.S. Export-Import Bank’s support to projects in sub-Saharan Africa has risen from an average of $455 million annually between 2006-2009, to over $1.4 billion in FY11. And yet, even at this rate of growth, the U.S. still plays a distant second to China’s Ex-Im Bank, which commits over $6 billion annually.

The same is true for the other members of the BRIC bloc. In my last trip to South Africa, a senior official noted the irony: as the U.S. economic focus is pivoting towards the BRICS markets, the BRICS are pivoting to Africa.

At the Chamber, aligning our policies with Africa’s economic emergence is a priority, and we’ve outlined specific steps the U.S. can take to bring our policy into line with Africa’s new potential.

We can start with passage of the Increasing American Jobs through Greater Exports to Africa Act, which the Chamber believes would be a clear signal that the U.S. Government takes seriously its role in stimulating greater foreign direct investment by U.S. firms in Africa.

We can also take steps to ensure that American firms seeking to break into African markets have commercial support in our embassies. For years, the U.S. Foreign Commercial Service officers in missions across the continent have provided valuable on-the-ground assistance to American companies in Africa. But now, just as many in the U.S. business community are beginning to focus on Africa in earnest, the Foreign Commercial Service’s footprint is shrinking. If that decline isn’t reversed, the U.S. economy will pay a price in lost deals and decreased competitiveness.

In the same spirit, the U.S. Chamber continues to support more Africa-targeted funding for U.S. government agencies that are already successfully supporting U.S. investment in emerging markets. We were highly encouraged by the recent release of the administration’s Presidential Policy Directive on Africa—the first clear sign that the most senior officials in the U.S. Government take seriously the need for economic engagement across the continent.

The Chamber also supports the effort to establish formalized trade and investment treaties between the U.S. and Africa’s Regional Economic Communities. The gains from these kinds of agreements are indisputable. I am regularly reminding U.S. policymakers that, following the Trade and Investment Framework Agreement signed between the United States and the East African Community in 2008, U.S. exports to this bloc shot up by 33 percent.

Finally, there’s AGOA—the African Growth and Opportunity Act, signed into law in 2000. AGOA is not only good for the economies of Sub-Saharan Africa, it also offers tangible economic benefits for U.S. companies here at home. Action here is urgent. AGOA’s expiration in 2015 threatens to undermine the significant gains that African economies have made under this program.

As early as this September, AGOA’s 3rd Country Fabric provision is slated to expire, directly threatening not only hundreds of thousands of jobs across the continent, but also—and this is key—the good standing of the United States as a reliable partner in Africa’s development. Our message at the Chamber is clear: we need to extend and expand AGOA—not let it expire.

The urgency to extend AGOA applies to all the initiatives identified here for U.S. policymakers. Long-term trends point towards the emergence of sub-Saharan Africa as an economic engine, but the near-term reality is that we have a very small window of about five years to economically engage in Africa.

The demand for high quality U.S. goods and services by those living in Africa is dramatically increasing. But in the not too distant future, our competition to the East will close the “quality gap” that favors U.S. products right now. As for Europe, our private sector competitors have trading preferences U.S. companies lack due to Europe’s aggressive pursuit of Economic Partnership Agreements.

Even this closing comment shows just how rapidly Africa’s economic status is changing, as companies compete for the chance to do business, and connect with a continent’s emerging consumers. For a continent whose economic relations have long been governed by zero-sum wrangling over percentages of foreign aid, this shift to a new paradigm of investment, trade, and competition marks Africa’s new reality.

A world of change is coming to Africa. As it does, the continent will begin at long last to experience the opportunity and hope that are the product of expanding investment and trade.

Scott Eisner is Vice President for African Affairs and International Operations at the U.S. Chamber of Commerce, the world’s largest business organization representing the interests of more than 3 million businesses of all sizes, sectors, and regions.

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