The US nudges Africa towards economic independence

27 August 2015

It costs almost US$4 500 to transport a container from Brazzaville in the Republic of Congo, across about four kilometres of the Congo River, to Kinshasa, capital of the Democratic Republic of Congo (DRC) on the opposite bank of the river, according to the World Bank. If you include inland transport costs, the total can top US$10 000.

To move the identical container with the same cargo from Malaysia’s Kuala Lumpur to Singapore, 256 kilometres away, costs less than US$1 000. Because of such poor infrastructure and inefficient customs procedures, only 1,1% of Congo Brazzaville’s imports come from its neighbour.

The US Trade Representative Michael Froman and Dana J Hyde, CEO of the Millennium Challenge Corporation, a US government development agency, offered this comparison in an article this week, to illustrate the stark problem Africa faces in really lifting itself off the ground economically.

The article was essentially about the 2015 AGOA Forum, which has been underway this week in Libreville, Gabon. AGOA – the African Growth and Opportunity Act – is the US law that gives eligible African countries (currently 39) duty free, non-reciprocal access to the US market for almost all of their exports.

AGOA, enacted in 2000, ‘has since succeeded in helping eligible nations grow, diversify their exports to the United States, and create employment and inclusive economic growth in sub-Saharan Africa,’ the US government says.

African exports to the US rose to US$26,8 billion by 2013, but more than four-fifths of that was oil. The US points out that non-oil exports rose by about 250% from 2001, to US$4,4 billion by 2014, helping to create some 300 000 direct jobs.

But South Africa is by itself responsible for a large chunk of that, with its auto exports to the US alone accelerating from US$289 million in 2001 to US$1,4 billion in 2014, according to Reuters. Florie Liser, the assistant US Trade Representative for Africa, acknowledged in a pre-forum briefing last week, that only 23 of the 39 African countries eligible for AGOA benefits have actually exported goods to the US. And the values of those exports are mostly pretty small. 

For, as Froman, Hyde and others have pointed out, AGOA is in the end, only a ‘demand-side’ measure, even if a pretty good one. With the partial exception of South Africa, Africa’s real economic problems are about supply.

The cost of moving a container across the Congo is just one example of the logistical and bureaucratic obstacles that business people have to overcome. Others include corruption, wars, warlords, governments that flout the rule of law, shocking roads, hazardous airlines, congested ports, and many more.

But the ultimate impediment to getting goods to market is, of course, making things in the first place that the market wants to buy. And the AGOA Forum is taking place at a soberly instructive time for Africa. Massive Chinese demand for African commodities throughout this century has been the main driver of impressive growth in African economies – averaging 6,4% between 2002 and 2008 – and the ‘Africa Rising’ narrative.

But the sudden Chinese slowdown, aggravating falling US demand for oil because of its own shale-gas discoveries, has exposed Africa’s failure to industrialise and has dropped forecasted growth across Africa this year to 4,2%.

‘Every major economy in Africa that did well out of the extractive industries over the past decade has failed to industrialize,’ Ricardo Soares de Oliveira, who teaches African politics at Oxford University, told Reuters this week. ‘While exports from the region more than quadrupled to US$457 billion in the decade to 2011, manufactured goods made up just US$58 billion of that,’ Reuters said.

Some countries without oil or minerals, such as Kenya, Ethiopia and Lesotho have done a bit better. Kenya is targeting labour-intensive, low technology industries such as textiles and leather to take advantage of AGOA. And manufactured goods already accounted for about 20% of its exports last year. Textiles and apparel sales from Kenya and Lesotho have already jumped under AGOA from US$359 million in 2001 to US$991 million in 2014.

Recognising these deeper problems all too well, the US has chosen the theme of ‘AGOA at 15: Charting a Course for a Sustainable US-Africa Trade and Investment Partnership’ for this week’s forum. The theme recognises the US Congress’ recent reauthorisation of AGOA for an additional 10 years – rather than the usual three-year extension.

Both the US and Africa hope that extending AGOA for a decade will gives investors enough predictability to encourage them to make long-term investments – such as building factories – in Africa, knowing they will be able to get a good return on their investments by exporting their goods duty-free for a longer time. As Liser noted, AGOA has already encouraged some investment – for example in textile mills to feed the factories producing apparel for the US market. More was now expected on the 10-year horizon.

But the theme of the forum also accepts the need for ‘a more comprehensive approach, one which recognizes that tariff preferences alone are not sufficient and addresses the supply-side constraints facing Africa today,’ as Froman said at the forum. The AGOA extension act intends to tackle some of those constraints, with trade facilitation measures and more generous rules of origin that will allow African producers to source inputs from a wider range of countries.

But to be productive and competitive, Africa also needs affordable, reliable electricity, efficient ports and products that meet international standards, Froman said. The US was trying to help with measures like its Power Africa initiative to get electricity to millions more Africans and its US Aid and Millennium Challenge Account compacts, which were focusing on boosting trade by developing ports and other relevant infrastructure.  

Interestingly, the forum topic of trying to establish a sustainable commercial relationship with Africa also hints that the current iteration of AGOA, which will expire in 2025, will be the last. The US government tweeted that the forum would ‘launch a dialogue on our shared vision for the post-AGOA future of US-Africa trade’.

So the US is perhaps seeing the next decade as the last, long training exercise before it jettisons itself out of the cockpit, so to speak, and launches Africa into solo flight after 2025, entering into a normal, reciprocal trade relationship with the continent. Francis Kornegay of the Institute for Global Dialogue suggests this could entail several two-way, free trade area agreements with Africa’s various regions.

By 2025, though, if all goes according to plan, Africa’s regional economic communities will have merged into the envisaged single, Africa-wide Continental Free Trade Area, so the US could negotiate a free trade agreement with all of Africa.

The impediments to be crossed before that point is reached seem insurmountable. Yet such a move would not be unprecedented. The Economic Partnership Agreements which the European Union has already negotiated with some African countries – and is trying to negotiate with all – are also, after all, an often painful attempt, to ‘graduate’ Africa from a long, non-reciprocal trade relationship with the EU to a more normal, reciprocal one. 

Peter Fabricius is an ISS Consultant.

This article first appeared in ISS Weekly, the online journal of the Institute for Security Studies.