US President Barack Obama will host a gathering early next month of the largest number of African heads of state and government to visit Washington on any one occasion, in an effort to reset diplomatic and commercial ties with Africa.
The three-day US-Africa Leaders Summit, which starts on August 4, is themed “Investing in the Next Generation”. About 50 of the continent’s leaders will attend.
In the past 15 years, Africa has enjoyed its liveliest, most widespread and enduring growth since the onset of independence around the middle of the 20th century. Africa now accounts for 4.1 percent of world gross domestic product, up from 3.4 percent in 2000. Moreover, structural shifts suggest that growth will continue:
n Trends in population growth imply that by 2050, one in four of the global population will reside on the African continent;
n Urbanisation rates are swelling and, by 2050, at least 60 percent of Africans will be born in, or migrate to, cities – a 50 percent rise from current rates;
n Technology deepening is enabling new economic growth modes, and the ubiquity of mobile-telephony over landline instruments is instructive;
n Financial deepening is bolstering consumer muscle as it transforms cash-based economies into credit-fuelled ones; and
n Africa’s substantial resources endowments are being better harnessed for general development.
These propellers, and the allure of commercial success, have drawn governments and multinationals from around the world into trade ties with Africa. Now, the summit offers the US an opportunity for its greater participation on the African continent.
In recent years, the political and economic ties between Africa and non-traditional partners have flourished. For instance, individually and collectively, China, India and Brazil have redefined the rules of engagement of Africa. For these nations, Africa provides a vital source of growth-enabling natural resources, a large and growing consumer market and clout on the global multilateral stage, adding emphasis to ongoing shifts towards a rising and resurgent South. For Africa, these nations offer a critical new source of investment, a powerful and durable additional link to the global economy and a set of partners from which a more relevant and engaging developmental model can emerge.
China has been the most ambitious, and the most successful. The speed and scale of its political and commercial forays in Africa over the past 15 years has forced a wholesale shift in strategy by the continent’s traditional trading partners, forcing countries, which had tacitly agreed with The Economist’s labelling of Africa as a “hopeless continent” in May 2000, to re-evaluate and ramp up engagement of markets in which they had long lost interest. China’s expansion into Africa has also precipitated a general increase in so-called South-South co-operation on the continent, giving rise to the burgeoning relations with other emerging market players such as Brazil and India.
Today, these three nations account for about 25 percent of Africa’s global trade, a seismic shift from 3 percent in 1992.
Meanwhile, trade between the US and Africa as a share of Africa’s worldwide trade plunged from 15 percent in 2006 to 7 percent last year. While the US features as one of the largest holders of foreign direct investment stock in sub-Saharan Africa, in excess of $31 billion (R325.5bn), less than 1 percent of its global assets are lodged in the region. This contrasts with 3.5 percent for China. Further, South Africa and Nigeria dominate US foreign direct investment (FDI), and with mining sector preference. Contrastingly, China’s flows cover a broader geography and are sectorally more diverse.
While the US might admit to arriving late to the table, it will counter that it brings commercial and industrial excellence. And even though US policy towards the continent has a strong military current, especially in north and east Africa, it will likely concede that its African counter-terrorism agenda has failed. Instead, promoting African development through inclusive democratic governance, poverty alleviation, trade and investment is likely to advance America’s global business agenda and lessen US homeland insecurity.
The Americans are enamoured of Africa’s power generation prospects, in addition to general public infrastructure opportunities. Social and economic infrastructure, such as schools, hospitals, ports, rail and roads, feature prominently on African governments’ economic programmes. And, the desire for private sector participation in these projects has intensified.
This is notable because FDI in Africa has been skewed towards mining and resource extraction. So the pivot towards infrastructure investment outside the commodities complex alludes to the rising consumer class. Africa is the only region in the world that offers accelerating growth across the spectrum of household consumption categories, including food, energy, low-end durables, high-end durables and services. Even Asia’s consumption growth of essential food items has peaked.
A significant element of the US’s vibrancy is its multinationals; entities with proven industrial processes, established retail networks, and brands with global cachet. Combined, these attributes are pivotal in penetrating new markets and harnessing pricing power, and so give US firms some competitive edge.
The summit presents the opportunity to reset the US’s commercial strategy for Africa. There is ample scope for the US to chart a new course; traditionally, it invests in only a few countries and a few sectors.
For Africa, the summit is a moment to strengthen partnership with a leading economic power, in the context of an increasingly multi-polar world.
Locations to tap pools of capital, to forge trade ties, and to find alignment on global subjects such as climate change, will rarely be found in any one place and time. The US can be a vital commercial partner to Africa, amid a constellation of others.
Goolam Ballim is group economist at Standard Bank.