An opportunity is presenting itself to improve U.S-Africa trade and investment relations. President of the United States, H.E Barack Obama is scheduled to host the first ever U.S.-Africa Summit in Washington, DC on August 5 and 6, 2014. African leaders will therefore have an opportunity to identify and present their ideas to President Obama on what they believe should be done to improve to the U.S-Africa trade and investment relations.
Africa is being seen as one of the world’s most dynamic and fastest-growing regions. According to the 2014 projections released by the Economist Intelligence Unit, four out of ten fast growing countries of the world are in Africa. These include Sierra Leone (11.2%), Libya (8.8%), Eritrea (8.0) and Zambia (7.9). Actually, Africa's growth is superseding the rates in Asia. The African Development Bank has projected that by 2030 much of Africa will graduate into middle class economies with the majority attaining consumer spending level of $2.2 trillion. These projections clearly show that the next lead destination continent for foreign direct investment will be Africa.
It is not surprising therefore that the United States is hosting a U.S-Africa Summit which is expected to focus on trade and investment relations between the two parties. The Summit is also expected to discuss America’s involvement in ensuring Africa’s security and promoting democratic principles
The AGOA has not yet improved the US-Africa Trade and Investment Relations
African leaders however, need to take advantage of this first ever U-S-Africa Summit and use it to reverse the trade and investment trends which hitherto have been unfavorable to Africa. The U.S provides to Sub Saharan Africa duty free quota free market access to the America market under the AGOA arrangement. The objective of the AGOA is to enable Sub Saharan countries to integrate into global economy as competitive and meaningful trade and investment players. However, it does not seem that this noble objective is about to be achieved, even when AGOA has been in existence for over 13 years.
Data available from United States International Trade Commission (USITC) shows that over 32% of the exports to the US under the AGOA are contributed to by Nigeria. South Africa and Angola each contribute about 24% of the total exports from Sub Saharan Africa. However, all LDCs in Sub Saharan Africa are contributing less than 1% to the exports under the AGOA.
The above situation reveals that the objective of the AGOA has not been achieved. In spite of the dismal performance under the AGOA, Africa continues to import massively from the U.S a situation that is worsening the trade imbalance between the two parties and more specifically with those Africa countries whose export base does include minerals. It should be noted that oil and petroleum exports account for about 84% of the total exports under the AGOA. Apparel and textiles which supposedly are the mainstay of the AGOA, contribute about 17% of the total exports excluding oil and petroleum related exports.
Statistics can at times be misleading; the USITIC data shows that in 2013 the U.S recorded a trade imbalance with Africa to the tune of $15,286.2 million. This ordinarily implies that the U.S is importing more from Africa than it exports to the continent. But a quick look at the data reveals that a few of the African countries are actually benefiting from this situation. These are mineral reach countries i.e. Nigeria-Oil, Angola-Diamond and South Africa-Gold. These are the main countries that have a trade balance with the U.S led by Angola which recorded $7,294.90 million in 2013 and flowed by Nigeria at $5,249.4 million. Actually Angola and Nigeria alone contribute over 70% of the total trade deficit the U.S is recording with Africa. The majority of the African countries and mainly LDCs are recording a trade deficit with America.
The poor performances of the exports from African countries save for those that are endowed with rich mineral resource base are attributed to a number of factors which indicated below;
Factors affecting the growth the U-S-Africa Trade and Investment Relations
- Some of the agricultural products in which African countries have competitive advantage are not included in the list of AGOA eligible products. These include coffee, tea and tested herbal medicines, among others. This has limited the scope of exportable products available to these countries. The majority of the provided would require African countries to begin, integrate and standards their production process. In other words agricultural based economies were not provided with an opportunity to start from the acquis (i.e. to start and build from the existing production systems in place), because the traditional products whose production system had already been developed are excluded from the AGOA.
- Africa has not been able to attract U.S citizens to invest in Africa which is one of the mechanism through which Africa was expected to uplift its production levels.
- The costs of doing business remain very high due to the supply side constraints.
- The value chain of the agricultural products are not integrated due to lack of mid-level value addition investments. As a result Africa continues to export sem-finished or raw products. This plays to the advantage of the U.S since it provides an avenue to access the much needed raw materials for U.S industries.
- Trade infrastructure is inadequate to facilitate the production, value addition and transaction of the products. Africa still lacks transport inter-connectivity that can be used to facilitate not only the backward and forward follow of goods but also to enable value chain integration or cumulation between African countries. In addition to transport infrastructure, Africa is yet to provide for adequate storage (include cold and warm chains stores) and warehousing facilities along the value chain of the targeted products.
- The rules of origin and the standards requirements by the U.S are not favorable for the improvement of the U.S-Africa trade and investment relations. The requirements remain so stringent and sometimes unnecessarily above the international standards in order to provide Americans with an effective competitive level.
- Predictability under the AGOA remains a very big hindrance to the attraction of targeted investments. The AGOA was first introduced for five years and later on extended for 8 years. But in both the first and the second AGOA the time has been so short for African countries to attract meaningful and targeted investments. An investment must be provided with an incubation period within which production will stablise and investment costs recovered before the returns to investment can be realized. The time allowed for this could be up to to ten years, a period longer than the duration of the AGOA itself. Therefore is therefore need for a more predictable and reliable regime within the U.S-Africa trade and investment relations will be improved. The AGOA should be extended for at least 15 years. Anything duration below, is simply not going to support Africa improve her trade relations with America but instead, it will only serve to provide a platform for the U.S to make propaganda of its efforts to uplift Africa.
- Transaction costs are very high mainly because of the high transport costs. There are limited or no direct flights from Africa to U.S. These force exporters to go through Europe or Asia before delivering to the U.S. Exporters are made to pay unnecessary transport costs just because the U.S, accordingly for security reasons, has not accredited some of its airlines to fly directly to Africa. The persistent labeling of Africa as an insecure continent have continued to make direct roots as not worthwhile investment ventures.
- There is limited collaboration between trade facilitating institutions in Africa and their counterparts in the U.S. For example on issues of sanitary and phytosanitary standards, the U.S food and drugs must accredit related products before they are imported into the U.S. There is however not much collaboration with the equivalent institutions in Africa to ensure that the requirements are adhered to and that the accreditation process is fast-tracked. This is also true with customs agencies as far as issues of tariffs and rules of origin are concerned.
- Immigration visas to the U.S remain to most costly and unfriendly for business. The requirements and procedures involved do not necessarily promote movement of business persons from Africa to the U.S. As long as business people are not allowed to easily move to the U.S, there is no way that U.S-Africa trade and investment will improve.
The need for Africa to maximize from the U-S-Africa Summit
In a nutshell, African leaders will need to reflect on these and others issues in their engagement with the United States during their first ever US-Africa Summit. Africa must rise up to the occasion and call for terms of engagement which will promote mutually beneficial US-Africa trade and investment relations. It is important for Africa to move to the Summit with one voice and position on their expected outcomes. The U.S should be made to understand that there are now many world trade and investment players and that if they, the U.S, do not provide favorable terms, then there will be options for Africa in promoting its trade and investment relations with third parties. Africa has showed that it can emerge and so, this should be the opportunity for the continent to influence global economics to its advantage.