US economic relations with Africa
Sean Woolfrey, tralac Researcher, discusses US economic relations with Africa
In light of the re-election of United States President Barack Obama last week, this is an opportune moment to examine the current state and future prospects of US trade and investment relations with Sub-Saharan Africa. Given his African heritage, there were high hopes in the region that President Obama’s election in 2008 would herald a new era of closer US-African relations, but, to the disappointment of many in Africa, the Obama administration has devoted relatively little attention to the continent over the last four years. This, some argue, has contributed to a relative decline in the importance for African countries of economic ties with the US, especially as other emerging powers such as Brazil, China and India have significantly increased their engagement with the continent in recent years. It is notable, for instance, that in 2011, China overtook the US as the single largest import market for goods from Sub-Saharan Africa. This followed a decade in which Sub-Saharan Africa’s exports to the US grew slower than the region’s total exports and significantly slower than exports to China.
The US nevertheless remains a vital partner for many economies in Sub-Saharan Africa. In 2011 the country accounted for almost 20 percent of Sub-Saharan Africa’s total exports, making it the second most important single market for African goods after China (which absorbed 22.3 percent of Sub-Saharan Africa’s exports in that year). The United States’ continued importance as a trading partner for Sub-Saharan Africa has much to do with the African Growth and Opportunity Act (AGOA), a unilateral trade preference programme launched by former US President Bill Clinton in 2000. AGOA provides duty-free entry into the United States for almost all products exported from eligible countries in Sub-Saharan Africa. The programme has been credited with fostering an improved business environment in the region (through eligibility requirements) and facilitating the diversification of the region’s export basket. Two oft-cited examples of AGOA ‘success stories’ in this regard are US imports of motor vehicles from South Africa – valued at over $2 billion in 2011 – and US imports of apparel from the likes of Lesotho, Kenya and Swaziland. It should be noted, however, that petroleum oils account for approximately four-fifths of US imports from Sub-Saharan Africa.
The preferential access offered to apparel exports under AGOA is very important for a number of economies in Sub-Saharan Africa. For example, in 2011, exports of apparel under AGOA accounted for fully 40 percent of Lesotho’s overall merchandise exports. From the point of view of such economies, one of President Obama’s most important undertakings occurred earlier this year when he successfully convinced the US Congress to extend the AGOA ‘third country fabric’ provisions that allow certain AGOA-eligible countries to use non-African fabric in the manufacture of apparel destined for the US market. This provision has allowed countries like Lesotho, which do not have domestic fabric manufacturing capacity to maintain a viable apparel manufacturing industry. AGOA is set to expire in 2015, but President Obama has indicated that he will seek to renew the programme before it expires.
On the investment side, foreign direct investment (FDI) flows from the US to Sub-Saharan Africa were valued at $3.2 billion in 2010 (down from a recent high of $6.8 billion in 2009). Overall FDI inflows into the region were measured at $29.5 billion in 2010, meaning the US accounted for almost 11 percent of foreign investment into Sub-Saharan Africa in that year. US investment relations with the region are governed by a number of bilateral investment treaties and trade and investment framework agreements with countries and regional blocs in Sub-Saharan Africa. The US has also signed a Trade, Investment and Development Cooperative Agreement with the Southern African Customs Union (SACU) and is in the process of seeking a new Trade and Investment Partnership Agreement with the East African Community (EAC).
Looking ahead, US economic relations with Africa during President Obama’s second term will likely be guided by the White House’s U.S. Strategy Toward Sub-Saharan Africa released in June this year. The strategy has four basic objectives: 1) to strengthen democratic institutions; 2) to spur economic growth, trade and investment; 3) to advance peace and security; and 4) to promote opportunity and development. On economic growth, trade and investment the Strategy talks of promoting an “enabling environment”, “improving economic governance”, supporting regional integration, expanding Africa’s trading capacity and encouraging US firms to do business with the continent. However, the Strategy does not introduce much in the way of new initiatives, referring mostly to the need to build on long-standing US and international programmes – such as AGOA, the New Alliance for Food Security and Nutrition and the Extractive Industries Transparency Initiative – and newer but already existing programmes such as the African Competitiveness and Trade Expansion Initiative and the Partnership for Growth. Indeed, the only truly new initiative proposed by the Strategy is a “Doing Business in Africa Campaign”, which appears to be in the process of development.
Unfortunately, this suggests that, in terms of US economic engagement with Africa, the next four years may simply end up being a case of ‘more of the same’.
Aggad, F. 2012. Will the re-election of Obama just bring more of the same to Africa? Available online at: http://ecdpm.org/talking-points/will-reelection-obama-just-bring-more-of-the-same-to-africa/
The White House. 2012. U.S. Strategy Toward Sub-Saharan Africa. Available online at: http://www.tralac.org/images/docs/US-Africa/US%20Strategy%20Towards%20Sub%20Saharan%20Africa%20June%202012.pdf