Cheta Nwanze, Lead Partner, SBM Intelligence
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Subjects of Interest
- Fiscal Policy
- Geopolitical Analysis
US-Africa Summit vs. China’s investment in Africa 13 Jan 2023
On December 13-15 in Washington D.C., the US government hosted African leaders and other guests at its U.S.-Africa Leaders Summit with the theme “Partnering for a Prosperous and Resilient Future.” The official communication states that it's hoped the summit would further highlight the United States’ longstanding commitment to Africa and strengthen ties between the US and African countries.
US President Joe Biden had invited the African Union leadership and 49 African heads of state to the three-day summit to work on firming up relationships between his country and Africa's governments and private sectors. The US-Africa Business Forum (USABF) is looking to drive deeper multi-layered interaction between government and private sector leaders from the US and Africa, especially on the day of its event on the second day of the summit on the 14th of December. This sounds like a great way forward until one considers that the host and President Biden did not commit to private meetings with any of the African leaders attending the summit.
The American president only committed to a dinner and group photo session with the African heads of state, who would all have left their countries and flown to a faraway continent in response to an invitation from a fellow president who doesn't care enough to make out a couple of hours for meetings with other presidents on serious issues that affect hundreds of millions of Africans. Sometimes it is the little things that give clarity on how much political will is available.
Summits are just events. Without the political will and commitment to follow up on the highlighted goals, they are extended dinner parties for politicians and technocrats.
It is not a good look for almost 50 African Presidents to leave their countries for the US without being likely to have a sit-down with their host. We must ask ourselves if it's worth it and how much better we can do. We need to judge the US's confidence in Africa's future based on its actions so we can know if Transatlantic flights to dinner parties are even worth considering.
It's bad enough that the US is dealing with Africa as a bloc instead of at least dealing with some countries o n a more individual basis that shows a commitment to nuanced work and investment that requires a deep study of the parties involved. It just reeks of indifference.
If we are being honest, some indifference would be excused because Africa has simply not made the continent a market valuable enough for the wealthy nations to be overly concerned about. But this cannot be a one-way evaluation. Africa, too, needs to take proper note of where its interests are best served and give that the deserved attention.
A key pillar of American support for Africa has been the African Growth and Opportunity Act (AGOA) trade programme that gives sub-Saharan African countries that meet certain criteria tariff-free export access for specific product categories to the United States. The AGOA programme allows for the export of 5,240 tariff items. These goods must be either wholly obtained (grown, fished, mined, etc.) or sufficiently manufactured in an AGOA country. The rules dictate that "Sufficiently Manufactured" means that all 3rd-country materials have undergone a substantial transformation. At least 35% of the good’s value is added in the beneficiary country, with up to 15% of that value attributable to U.S. inputs. The goods must be “imported directly” from the ports of the AGOA country concerned.
The AGOA programme was established in 2000 by then-President Bill Clinton to improve ties. It was meant to be mutually beneficial by giving the U.S. economy access to a continental market with almost a billion potential consumers.
In reality, it has yet to turn out this way as the interplay between the average wealth level of even middle-class Africans and the foundational cost structures of the US economy mean that most American-made products cannot be sold profitably to Africans at scale. Digital media and social media products have been the aberration because of their low-cost scalability, allowing them to be replicated in hundreds of millions with a slight rise in production costs.
36 countries are active in the programme, with 12 other nations suspended for failing to meet set criteria for participation. The currently suspended nations are Somalia, Mali, Sudan, South Sudan, Burundi, Cameroon, Guinea, Equatorial Guinea, Eritrea, Ethiopia, Mauritania, and Zimbabwe, and only 18 active AGOA participants have designed national policy strategies aimed at achieving optimal use of the programme.
Only sub-Saharan African countries are eligible to be beneficiaries of AGOA, and they must fulfil criteria related to economic liberalisation, respect for the rule of law and human rights, and have a per capita gross national income level that's below the $12,535 set by World Bank as the base level of high-income countries.
The programme has failed to meet expectations, and Africa’s exports to the United States are currently at pre-AGOA levels. The trade-flow directions of AGOA, primarily reliant on crude oil and apparel, have done very little to develop industrial capacity back in Africa as these sectors cannot, directly and indirectly, inspire a deepening of local technical capacity and diversification of African economies.
The AGOA programme's progress has stalled and even been reversed after an opening spike in US imports from Africa, with exports from AGOA countries to the United States climbing from $22 billion to $61 billion. Sub-Saharan Africa is responsible for less than 1% of US imports. Success stories like automotive production in South Africa have been from non-African corporations that have kept their technology in-house. The process has yet to do much to improve local technological development and industrialisation. Apparel sector growth has been limited mainly to a couple of East African locations.
While US-Africa trade unfolds this way, Africa-China trade takes a different route. China-Africa trade has soared. China has overtaken the United States as Africa's largest single trading partner, achieving an all-time high of over $250 billion in 2021. Africa's public and private sectors increasingly find more value in political and economic interaction with China. This is partly boosted by China's production cost structures that can produce goods at prices that suit the African market and average income levels. It is important to point out that African exports to China might have more considerable value, but they tend to be unprocessed natural resources with very little value-addition that would increase revenues and improve local capacity.
China has increased its foreign direct investment flows into Africa and maintains special trade and economic cooperation zones in sub-Saharan countries while making available development loans worth over $150 billion over the past 20 years.
Then there's the Belt and Road Initiative (BRI), which looks to develop new trade routes linking China with the rest of the world. This has brought about Chinese investment in major infrastructure in African countries in Uganda, Egypt, Ethiopia, and Nigeria. This has helped develop railway networks, gas pipelines, etc.
The US has tried to term these developments as predatory and self-serving Chinese plans, but actions speak louder than words. China looks much more confident in Africa's capacity to eventually sort out its troubles and is investing in being in place as the major economic partner when that happens. The US should do more than throw parties where the host barely talks to guests coming from far-off locations.
Cheta Nwanze is a partner at SBM Intelligence