The Future of the U.S.-Africa Economic Relationship

Last week Washington hosted nearly 50 African heads of state at the first-ever U.S.-Africa Leaders Summit. Countless meetings and conversations that took place not just among government officials but businesses, international organizations, and non-profits (including CIPE and Freedom House) brought Africa into the spotlight. Yet the most important aspect of the Summit is still ahead: what did we learn and how can this knowledge guide the way forward?

One of the most informative outcomes of the Summit to me was the launch of a report Africa and the United States: A defining relationship of the 21^st century at the U.S. Chamber of Commerce’s Presidential Plenary. The report was jointly produces by the U.S. Chamber and Investec Asset Management (IAM), a global investment management firm founded in 1991 in South Africa. Hendrik du Toit, Investec’s CEO, unveiled the report and discussed its findings with a panel of corporate leaders.

As the report puts it, “With 54 countries, 29 stock markets, 15 bond markets and an expanding universe of public and private businesses, investors have a growing number of avenues to participate in the continent’s transformation.” Here are some of the highlights of where the continent’s transformation is heading and how it may affect the U.S.-Africa relationship:

• Sub-Saharan Africa’s exports have grown by 11 percent per year since 1995, with crude oil and petroleum derivatives accounting for 65 percent of the exports. But the future of African economies is not just about natural resources. Consumer spending across Sub-Saharan Africa is expected to rise from $600 million in 2010 to $1 trillion by 2020.
• The youth bulge across Africa, if channeled into entrepreneurship and jobs through more productive agriculture and urbanization, can generate significant growth in the decades to come. Already by 2020 Africa’s working-age population will start to rival that of India and China and by 2050 it will be by far the largest in the world (around 1.3 billion people).
• U.S. public sector engagement is changing from a focus on aid to public-private partnerships and trade through policies such as the African Growth and Opportunity Act (AGOA). Other U.S. government initiatives, such as Power Africa, also recognize that the continent requires over $100 billion of infrastructure investments per year for the next decade.
• Historically, the absence of political stability and reliable legal institutions that enforce property rights has been a major obstacle to investment and economic development in Africa. Although pockets of violence and authoritarian rule still remain, there have been significant improvements in terms of lower prevalence of conflict and the extent to which governments are democratically elected. These improvements in governance are having a real impact on much-needed infrastructure spending and development at the local and city levels.
• A growing number of U.S. multinationals such as IBM and GE aim to capitalize on Africa’s growth potential, particularly as growth in traditional developed markets has suffered in recent years.

Opportunities are definitely out there. At the same time, U.S. investors and businesses need to appreciate different dynamics in each market and pay attention to the broader business environment that affects not just them but local businesses who are potential suppliers, distributors, and partners.

Foreign and local companies need to work together – and with governments through public-private dialogue – to build conducive investment climates. As Donald Gips, the Chair of the U.S.-South Africa Business Council and former U.S. Ambassador to South Africa said, “There isn’t one Africa. There are 54 different markets, each with its own opportunities and challenges. … Finding that win-win is what really matters. Whether it’s Ford building cars in Africa, but with a plant in Kansas City that actively provides the parts, or General Electric building locomotives in Pennsylvania and then assembling in South Africa. … The real question is: how do you create the conditions so that investment can happen?”

Anna Nadgrodkiewicz is Director of Multiregional Programs at CIPE.