WASHINGTON — “There seems to be this perpetual focus from the outside on foreign assistance to Africa…” said Sen. Jeff Flake, Chairman of the Senate Subcommittee on Africa and Global Health Policy.
“Much of this assistance is obviously critical. However, many Africans want to develop their own economies and reach a point where they are not so dependent on foreign aid.”
Sen. Flake’s words went to the heart of the central question in the Subcommittee’s hearing on African development on Mar. 17, 2015: how can the U.S. government and the U.S. private sector collaborate with African nations in order to make African nations into strong and self-sufficient allies of the U.S.?
To answer this question, the Subcommittee invited Del Renigar from GE, Susan Tuttle from IBM, Ben Leo from the Center for Global Development and Thomas Bollyky. After giving their testimony, they answered questions from Sen. Flake, Sen. Ed Markey, Sen. Johnny Isakson and Sen. Chris Coons.
Though the Subcommittee showed humanitarian intentions, it ultimately wanted to turn humanitarian efforts and infrastructure development into investments. It hoped these investments would capitalize on Africa’s potential for economic growth to bring mutual prosperity to Africa and the U.S and make the U.S. able to competitive in African markets.
U.S. Investment Plans for Africa
“Africa is a continent rich in economic and social potential,” said Sen. Markey, and the speakers unanimously agreed.
“Africa has been GE’s fastest-growing market since 2000,” said Renigar.
“Africa has a fast-growing technology market,” said Tuttle, “which according to the World Bank is expected to grow to $150 billion by 2016.”
“U.S. private investments in sub-Saharan Africa over the past decade have yielded among the highest rates of return of any region in the world,” said Bollyky.
“[Regional] GDP growth [in Africa]has averaged 5 percent annually since 2000,” said Leo, “exceeding levels in Latin America, Central Asia, and the Middle East.”
To capitalize on these developments, the Subcommittee settled on several measures: increase the efficiency of the U.S. federal bureaucracy, invest in African infrastructure and reduce trade barriers.
All speakers noted Africa’s economic potential, but bemoaned the inability of the U.S. bureaucracy to properly harness it.
Aside from continued support for the Millennium Challenge Corporation, called the MCC, the Overseas Private Investment Corporation, or OPIC, and the United States Agency for International Development, USAID, the speakers strongly recommended, in Renigar’s words, a “one-stop shop approach” to handling foreign development.
As Leo explained, unlike China and Europe, the U.S. does not have one agency to handle the logistics of foreign development. Instead, the U.S. has such a task divided among USAID, OPIC and “half a dozen other agencies.” Consequently, the U.S. cannot bring all the elements of foreign developments together and utilize them in a “seamless way and [in]an effective, highly accountable way.”
Leo offered as a solution the formation of a “U.S. Development Finance Corporation,” or USDFC. This corporation would afford the U.S. government an array of “budget-neutral” policy tools to “better respond to developing countries’ priorities and emphasize private sector-based development models.”
Though she did not endorse the creation of a USDFC, Tuttle saw the necessity of consolidating government resources. From the perspective of a private sector businessperson, Tuttle described how frustrating working with multiple agencies could be:
Each of these organizations have a different mission, a different focus. It is a complex [process]: it takes a long time to figure out, “How do they work?” “What is the complexity of their processes?” “How do I find my way [through these processes]?” And [this]take time. And what we find more and more is that there is less and less time and patience.
Leo and Tuttle agreed that the U.S. bureaucracy was too “disjointed” to handle the current pace of the global economy.
If the U.S. failed to modernize its policy tools and deepen its economic relations with Africa, Leo feared that “other actors, such as China and other emerging nations, [would]fill America’s leadership void, and capitalize on their closer development with [Africa’s agenda].”
So that U.S. could have a foothold in Africa, the speakers proposed investing in Africa’s infrastructure. Aside from satisfying Africa’s humanitarian needs, increased investment would also make African markets more lucrative.
“The United States is the world’s leading contributor of global health aid, which accounted for just 0.23 percent of U.S. spending in 2013,” said Bollyky. “The returns on that investment in sub-Saharan Africa, however, have been remarkable.”
Bollyky explained: “[I]mprovements in life expectancy in sub-Saharan Africa between 2000 and 2011 contributed to a nearly six-percent annual increase in full income.”
To take advantage of such a boon and maintain them, the U.S. government and the private sector would have to invest in sub-Saharan healthcare, particularly in measures to combat “non-communicable diseases,” or NCDs, such as cancer, diabetes and malnutrition.
Thus, the U.S.’s business prospects in sub-Saharan Africa were tied to the welfare of the region.
Expanding that vision to the entire continent, Tuttle described how the U.S. could couple business with infrastructure development. IBM has tailored its approach to information and communication technology, or ICT, in order to coordinate with Africa’s banking, telecommunications, utilities and healthcare sectors.
Furthermore, IBM had also invested in Africa’s next generation of business leaders by forming partnerships with various African universities and supporting the Young African Leaders Initiative, or YALI, Network.
Likewise, Renigar testified that GE held the Power Africa Off-Grid Challenge to find and fund promising African companies such as Afrisol Energy, which has been working on ways to turn waste into energy for Nairobi slums.
Pushing a “gas-to-power” initiative, Renigar attempted to portrait investment in African infrastructure as a win-win situation: Africa could meet its energy needs while the United States could gain access to Africa’s natural gas reserves and richer consumers.
Using Ghana as an example, Renigar testified that liquefied natural gas could reduce Ghana’s power costs “by up to 35 [percent],” potentially freeing up “$1 billion annually.” Ghana could then use this money to spur on greater economic activity.
According to the data Leo presented, greater economic activity has been and would be the number one priority for Africa. When given a list with Africa’s major concerns, a vast majority of African countries had as their “[t]op [p]riority” either “infrastructure” or “[j]obs & [i]ncome.”
To help Africa advance these priorities, Leo argued, the U.S. should pass “Energize Africa/Electrify Africa legislation.” Such legislation would combat what Renigar called Africa’s “extreme energy poverty.”
Citing data from the World Bank[i], Leo identified electricity as a major constraint on the activities of African firms. For more than 80 percent of firms in Tanzania, Ghana and Uganda, electricity has indeed been a significant obstacle.
By investing in Africa’s infrastructure, the U.S. would not only been contributing to Africa’s prosperity, but also advance its own prosperity.
To maximize those gains, the speakers recommended addressing some of Africa’s and the U.S.’s trade barriers. Because U.S.-Africa trade is inextricably tied to Africa’s sociopolitical welfare, trade barriers included economic and sociopolitical policies.
For Tuttle, a major obstacle to U.S.-Africa trade was “forced localization.” She summed up the measure as “supporting local industries by discriminating against foreign companies [(e.g. U.S. companies)].”
As Steven Ezell from the Office of Science and Technology Austria, Washington D.C., explains, discrimination is the result of the various requirements forced localization imposes as conditions of access to global markets.
One of these requirements revolve around “local content.” Local content requirements force foreign companies to incorporate a certain percentage of local technology and equipment into their goods in order for foreign companies to access local markets. Ezell claims that these requirements have cost the global economy $2.8 trillion in trade since 2009.
Another particularly troubling requirement is the localization of foreign intellectual property. Ezell claims it “compel[s]intellectual property or technology transfer as a condition of market access, or force[s]the local disclosure of foreign intellectual property.”
Expressing Ezell’s thought more bluntly, Tuttle said it “forc[ed]companies to give up their intellectual property and technologies.” According to Tuttle, this requirement has not only threatened U.S. companies’ property rights, but also has impeded the flow of information necessary to sustain trade and innovation.
Another trade barrier that stifled progress in Africa, Leo alleged, was the U.S. cap on carbon emissions. According to Leo, the cap would negatively and disproportionately impact the world’s poorest countries. African countries in this category were more reliant than others on their natural gas reserves, so the carbon cap would “effectively pus[h]the agency out of all [their]natural gas projects.”
Aside from these more apparent trade barriers, there were other obstacles that could hinder energy development.
As Sen. Markey and Sen. Isakson indicated, one of these obstacles was corruption: how have U.S. companies ensured that funds, expertise and manpower will be devoted to mutually beneficial projects instead of to the interests of a greedy, unscrupulous few?
Answering this question, Tuttle testified that IBM has utilized intracompany measures such as “ethics training” and legal training “multiple times a year.”
For Renigar and GE, the best measure was a “top-down” approach. In the case of Nigeria, Renigar testified that GE had a memorandum of understanding detailing the terms of joint projects between GE and Nigeria. To ensure Nigeria would obey those terms, GE would meeting with the Nigerian government and clarify its positions. These meetings would then frighten anyone thinking of committing corruption.
In response, Sen. Markey asked Renigar if such an approach could be also applied to the Power Africa initiative to increase Africa’s accessibility to affordable energy. Renigar suggested using the Department of Justice’s Foreign Corrupt Practices Act (FCPA)[ii]and using the conditions of Power Africa to involve government officials who could keep an eye on corruption.
By calling upon the economic and political leverage of the U.S., Renigar claimed, Power Africa could “sanitize[e][projects]to a certain extent.”
Building on the ideas of using the leverage of the U.S. government to secure significant benefits and safeguards for ethical free trade, Leo recommended that the U.S. stop signing trade and infrastructure framework agreements, or TIFAs, and start signing more bilateral trade agreements, or BITs, with Africa.
TIFAs, according to Leo, are “inconsequential talk shops.”[iii]They have led to meetings “once or twice a year…[with]broad-ranging conversation[s], but [have led]to nothing that [has been]particularly impactful.” They have not resulted in “binding protections for U.S. investors” and have not “advance[d]a real reform agenda.”
BITs, on the other hand, provide “foreign investors with core protections against political risk and uncertain business environments, such as expropriation, discriminatory treatment, or weak and partial legal systems.” They also “more public policy flexibility” although they are currently “more difficult to negotiate.”[iv]
Even so, as Leo explains, BITs have been one of the principle trade policy tools of “China and Canada,” two major competitors in Africa. The former has signed BITS with “24 African countries, including 15 out of the largest 20 regional economies. These BITS have given China “legally binding agreements covering almost 80 percent of regional GDP.”
In sharp contrast, U.S.’s TIFAs have only covered “7 percent of regional GDP.” Thus, Leo claimed that BITs would be key to placing strong safeguards for U.S. companies and investors and increasing the U.S.’s share of the African market.
Ultimately, to ensure that the African market would still be lucrative, Bollyky suggested more healthcare investment to ensure a “healthier, more stable workforce.”
Bollyky testified that the consequences of not having such a workforce would be grave. Ebola deaths have cost Liberia, Sierra Leone and Guinea approximately “$1.6 billion in economic output” for 2015. As for non-communicable diseases, NCDs would mean “less income and catastrophic health expenditures” at the household level and “[a]t the national level,” a “potential missed opportunity to capitalize on the demographic dividend[v]that lifted the fortunes of many higher-income countries.”
Losing the demographic dividend would be especially harmful to African economies because the dividend normally offers a chance at strong, long-term economic growth.
As Ronald Lee and Andrew Mason from the IMF) explain, the demographic dividend comes in two phases.
First, “the transition from a largely rural agrarian society with high fertility and mortality rates to a predominantly urban industrial society with low fertility and mortality rates.” The decrease in fertility rates and an increase in living, able-bodied workers “free[s]up more resources for investment in economic development and family welfare.”
The first phase creates a “window of opportunity” during which societies can wisely allocate resources to educate the youth and make it easier for younger parents to work. The decisions made during this first phase will have a direct impact on the second phase.
Second, as time passes, the beneficiaries of the first phase grow older and accumulate savings. Eventually, these savings will be invested, spurring on economic development. The amount of development depends on how much was saved. Without adequate “pension programs and retirement policies” and adequate resources for healthcare, the amount of money saved will be significantly lower than it would be with proper attention to these aspects.
Because of the demographic dividend, healthcare does not necessarily impede trade, but rather seriously impacts how profitable U.S.-Africa trade will be in the long term.
The Subcommittee’s call for more support for U.S. investment in Africa was motivated by humanitarian concerns and U.S. national interests. According to the speakers, Africa’s infrastructural deficiencies would be both challenges to overcome and opportunities to spur on growth through collaborations between Africa, the U.S. and the private sector.
Africa would be a long term investment, but one with great dividends.
– Dean Delasalas
Sources: African Review, IMF, International Chamber of Commerce, Office of Science and Technology Austria, Senate Committee on Foreign Relations, U.S. Department of Justice, U.S. Trade Representative, The World Bank
Photo: Motor Kid