Trade Relationships

The political and economic strengthening of Africa will lead not only to growth and development in the targeted nations, but also to worldwide growth. In a speech to the Summit on Africa Aid, USAID Administrator Brian Atwood noted that African markets for U.S. goods are already growing more rapidly than European markets, even though they remain much smaller in volume.³⁶ Equally important, the trends in export growth parallel domestic reforms; in recent years, the United States exported more to countries with the best political and economic reform records, while trade with countries with the poorest records declined.

Assistant Secretary for African Affairs George E. Moose, in an August 1996 statement before the Subcommittee on Trade of the House Ways and Means Committee, noted that "(T)he United States has an important economic stake in Africa's success... two-way trade between the United States and Africa last year reached a new high - $18 billion - 11% greater than in 1994."³⁷ Such a level of trade creates more than 150,000 jobs in the United States. If current export growth continues, 30 years from now the United States will be exporting $50 billion worth of goods to Africa, the equivalent of $600 in business for every American family.³⁸

In 1996, U.S. trade with the 12 countries of Southern Africa totaled over $9 billion, a level comparable to trade with the 15 Republics of the former Soviet Union combined. U.S. exports to Africa increased 23 percent above the 1994 level, to $5.4 billion, and in 1996 that figure rose to $6.1 billion. During 1995, the United States imported $12.6 billion from Africa, mainly oil, a 12 percent increase from 1994, and in 1996 that figure rose to $15.2 billion.³⁹ Again, according to Assistant Secretary Moose "(I)f the risks of doing business in Africa are higher than in many other places, the rewards, in the form of average rates of return on book value of 25 percent, are among the highest in the world."⁴⁰

Although African markets, trade, and investment remain underdeveloped and account for only 2 percent of world trade totals, with more than a half-billion consumers, the continent's potential could resemble that of the so-called Asian Tiger countries in the 1960s. Indeed, in November 1995, U.K. Foreign Secretary Malcolm Rifkind noted, "While many are still dazzled by the tigers of Asia, the farsighted are recognizing that Africa could be a boom region of the 21st century."⁴¹ In 1992, sub-Saharan Africa imported $63 billion in goods from around the world. Imports have risen by an average of 7 percent each year for the past decade. At this rate, African markets will amount to $480 billion by 2025 ($267 billion in current dollars).⁴² Meanwhile, the continent's exports rose by 4.2 percent in nominal value (although only 2 percent in volume) between 1993 and 1994 - from $91.3 billion to $95.2 billion. The impressive rally of commodity prices saw a turnaround in Africa's terms of trade from a 4.9-percent fall in 1993 to a 0.6-percent gain in 1994. The gain for non-oil commodity exporters was 17 percent.⁴³

The current level of private investment in less industrialized countries has reached an all-time high, with much of the flow to non-African countries such as Brazil, China, India, and Mexico, which until very recently were considered investment pariahs.⁴⁴ Since 1988, foreign investors have poured more than $400 billion into the Third World, but have largely shunned Africa.⁴⁵

With its economies not yet able to attract adequate foreign capital,⁴⁶ investment flows into sub-Saharan Africa during the early 1990s stagnated while those to other developing regions, notably Asia and Latin America, increased. Africa's share of foreign investment flows declined from 8.9 percent in 1991 to only 2.9 percent by 1994, according to an International Finance Corporation study. Moreover, 70 percent of investment flows into Africa in the early 1990s were concentrated in oil-exporting countries, mainly Nigeria.⁴⁷ Between 1994 and 1995, the United Nations reported that foreign investment in the continent plunged by another 27 percent, to $2.9 billion. Today, the continent receives roughly 3 percent of the $96.8 billion foreign direct investment flowing into developing countries.⁴⁸ Consequently, export growth in Africa has lagged behind the growth of world trade and African exports remain highly concentrated in primary commodities.⁴⁹ Today, most countries in Africa do not have stock markets, and only a handful of those that do are open to offshore investors.⁵⁰

Although broad growth remains elusive, in the 1990s the flow of private investment to some African countries, such as Ghana, Tanzania, Uganda, and, more recently. South Africa, has increased.⁵¹ Indeed, South Africa is now drawing substantial investments from multinational companies.

Increased stability, infrastructure, and consumer buying power as well as macroeconomic and political liberalization in African countries should further improve the climate for trade and investment, especially in the low-wage manufacturing plants that are often the basic building blocks of foreign investment. (See Box 1.) Competition is already high in some areas, witness severe tensions between U.S. and French oil companies over Gabon's petroleum resources in 1993,⁵² and more recently the clamoring over mining concessions in Zaire in the midst of the civil war, including negotiations with the then rebel leader, Laurent Kabila. Indeed, while loans to Africa from multilateral development banks (MDBs) have plunged (from $6.7 billion in 1989 to only $4.2 billion in 1994), MDB loans to the private sector are skyrocketing (from $697 million in 1989 to $1.1 billion in 1993).⁵³

No sector of the U.S. economy is growing faster than the export sector, which has doubled from 5 to 10 percent in the last decade. Still, the United States market share in the region - at 6.7 percent - lags behind Japan's 7.2 percent, and well behind the 30 percent share enjoyed by the European Union. Equally important, the U.S. still runs a significant trade deficit while most of our European allies maintain a trade surplus with the continent.⁵⁴ Japan enjoys a trade surplus with 40 of the subcontinent's 48 countries. The U.S. share of the market will surely dwindle and its trade deficit will increase if the government does not make a more concentrated effort to promote economic interests. The threatened U.S. disengagement in Africa has already led some to believe that "America's clout is not being lost to Africa's former colonizers. Instead, it is being picked up by Japan, the world's most formidable economic power."⁵⁵ In recent years, the Japanese have steadily increased both aid and investment in Africa.

In July of this year, however, U.S. President Bill Clinton announced a new trade and development initiative for Africa at the Denver G7 Summit, involving increased use of private capital, debt relief and the lowering of U.S. trade barriers in an effort to bring economic and social growth to the continent. The initiative combines a more focussed approach to assistance with trade and investment incentives to encourage economic and political reform. Some components of this initiative are now in draft legislation before the U.S. Congress.