Building Africa: Where’s The United States?

WEF logoDar es Salaam hosted the World Economic Forum on Africa on May 5. This event — which brought together 11 heads of state with a thousand participants from 85 countries — offered a counter-narrative to the political and economic disorder described by policy pundits like Robert Kaplan that have long distorted U.S. appraisals of the region’s strategic importance. Western media often overlook the continent’s many success stories. With the Wall Street Journal opening an Africa bureau in late 2009, Africa’s increasing economic and political significance is only just beginning to be noticed in the West.

One promising trend is the emerging East African Community (EAC), a regional economic group with a population of over 126 million across the member states of Burundi, Kenya, Rwanda, Tanzania, Uganda, and possibly the oil-rich nascent nation-state of southern Sudan.

Currently, the U.S. role in this embryonic economic growth story falls far short of the level of engagement shown by its Asian counterparts. If the United States wishes to maintain its strategic interests in the East Africa region, it must seek to better engage with the continent’s emerging regional structures. This will require policymakers to move beyond the confines of military strategy and to embrace a more holistic approach to economic and security policy in the region.

Establishment attitudes toward Africa have evolved quickly since 2000, when George W. Bush announced in his first presidential campaign that the continent didn’t “fit into the national strategic interests” of the United States. The establishment of a unified Africa Command (AFRICOM) became fully operational in October 2008, and the Combined Joint Task Force-Horn of Africa, stationed at the U.S. military base in Djibouti since 2002, both represent a major shift in America’s recognition of Africa’s growing geopolitical significance.

Yet this renewed emphasis on U.S. military and security interest in Africa doesn’t address the scale of commercial opportunities or the need for active competition, if the United States is to play a role in the continent’s burgeoning growth. There is a need for U.S. policymakers to deepen economic engagement with the region through investments in commercial agriculture, infrastructure, and technology development alongside established strategic security programs.

Regional Growth

A decision by the EAC last November committed member states to a common market treaty that will allow for free movement of people and goods in the region, and help foster the necessary conditions for sustained rapid economic development. By dint of size, the creation of a unified market drastically improves investment prospects in what has long been a fragmented group of large and small states. East Asian commercial actors have seized this opportunity. The recent surge in interest by Chinese, Japanese, and South Korean companies in the market potential and the natural resources of this key area has helped prime the region for takeoff.

U.S. policymakers should move beyond their narrow focus on the petroleum sector. In 2008, for example, petroleum products accounted for 92.3 percent of American imports from Africa under the African Growth and Opportunity Act (AGOA). The AGOA is designed to facilitate economic ties between sub-Saharan countries and the United States through the provision of preferential trading options for Africa.

Although other imports have continued to increase year-on-year, the oil-producing states of the Gulf of Guinea still dominate the list of business partners: Nigeria, Angola, Equatorial Guinea, Gabon, Chad, and the Democratic Republic of Congo. U.S. commercial cooperation with these states also undermines national credibility as a purported supporter of good governance, democracy and transparent business on the continent. Continued U.S. reliance on African oil producers at the expense of more diversified trade with emerging trade blocs like the EAC threatens to weaken U.S. position vis-à-vis Asian firms in the future.

Resource extraction is central to Asian interests too, but in East Africa these projects are tied to infrastructure development and a broader set of commercial interests. This is partly due to the landlocked location of recent oil finds in the region, which contrast with the offshore deepwater sites that U.S. firms operate in the Gulf of Guinea.

In East Africa, the Chinese are finalizing plans to build a shipping hub at Lamu Island in Kenya. This port could eventually ship out the oil recently discovered in Uganda’s Lake Albert, and connect to an oil pipeline out of Juba in Southern Sudan planned by Toyota Tsusho, the trading arm of the Japanese carmaker. The combination of new resource extraction projects with increasing transportation capabilities indicate the extent of transformation occurring in EAC economies. As infrastructure and technology linkages between EAC partners deepen, opportunities for regional political and business initiatives will increase.

Asian investment isn’t restricted to the extractive industries. Olyset Net, a joint venture between Japanese multinational Sumitomo Chemicals and Tanzanian firm A to Z Textiles, produces insecticidal mosquito nets and has helped to create thousands of jobs. Their success has proven the feasibility of outsourcing manufacturing to East Africa with local partners. With its recent announcement of plans to build a car assembly plant in Nairobi, Toyota East Africa became the latest Asian company to signal its intent for the region, following in the footsteps of Chinese auto manufacturer Yangfang Motors’ similar plans in Ethiopia.

Advances in regional telecom networks — highlighted by the recent completion of three separate undersea fiber optic cables in Kenya and Tanzania — are also boosting prospects for regional economic integration. These developments enabled Korean electronics company Samsung to release an energy-efficient television monitor with Internet capabilities for the East African market, demonstrating how creative adaptation can lead to success in large African markets. The rapid expansion of bandwidth capacity to EAC countries and the growth of mobile phone networks are driving growth in a range of economic sectors, including digital television, while e-government initiatives by national administrations raise hopes of a simplified regulatory regime that will support sustained development.

U.S. Stakes

Although the global financial crisis may have stifled U.S. companies’ appetite for risk, the East African community is a key element of maintaining U.S. competiveness over the long term. The Delta Airlines decision to offer direct flights from Atlanta to Nairobi beginning in June of 2010, in spite of resistance from the Transport Security Administration (TSA) and the U.S. government, reveals a growing gap between policy and the reality of economic growth and opportunity in East Africa. U.S. government reluctance to back significant investment outside of the Gulf of Guinea could have long-term consequences for trade preferences in other parts of the continent.

Furthermore, the importance of diversifying away from oil also has implications for equitable development in Africa’s key regions. Economies dominated by oil tend to be noncompetitive in other sectors and therefore vulnerable to exogenous price shocks. Ricardo Soares de Oliveira, a research fellow at the London School of Economics, details how “despite high oil prices and significant Western investment in extractive hydrocarbon sectors, large revenue levels often fail to trickle down from a handful elites.” The related reliance on government clientele for employment opportunities is an inevitable source of economic and political friction in many countries. Patronage is often distributed unevenly, and the exclusion of specific ethnic or social groups deepens political instability and inhibits dynamic economic growth.

Michael Ross’ work on the “resource curse” extends this problem to all mineral resources. Yet it fails to address the possible economic benefits of enhanced infrastructure investment required by the extractive sector. In the case of the EAC, Asian investment in improved road, rail, and Internet networks will not only support growth in the resource sector, but also boost other parts of the economy, most notably the service sectors and the technical professional services that are vital to the success of large projects.

The opportunities for economic diversification offered by the EAC are a chance for the United States to have a positive developmental impact on the region, which has not thus far been the case in the Gulf of Guinea.

The United States can no longer rely so heavily on aid disbursement and strategic weapons sales to influence the path to development of EAC members, but must instead be prepared to engage in constructive long-term investment that will demonstrate commitment to a prosperous future for Africa. In light of Chinese, Japanese, and Korean trade overtures to East African leaders, the U.S. government has become but one choice among a growing list of development partners. As U.S. domestic economic growth continues to stagnate, the United States should build more constructive economic and political relations with Africa. Supporting the continent’s improved economic prospects is in U.S. interests as well.

U.S. initiatives such as the Overseas Private Investment Corporation (OPIC) and AGOA are important symbolic efforts to find new policy approaches that can help support mutual interests of economic growth and development. But these strategies are not far-reaching enough. Despite the well-intentioned concept behind AGOA, preferential deals to aid development in poor sub-Saharan countries have actually strengthened the position of major actors in the extractive sector. Governments reaping the rewards of an economy dominated by extractive sectors are reluctant to diversify or democratize. At present, privileged access to the U.S. market granted under AGOA has also failed to deliver in this respect, as exports from African countries in other sectors continue to struggle due to supply-side deficiencies.

In response to the decline of Kenyan textile exports in recent years, Jaswinder Bedi, the Apparel Sector chairman of the Kenyan Association of Manufacturers, blames high production costs. Concentrating on addressing these fundamental supply-side insufficiencies, such as costly and erratic electricity supply, poor technical training of local employees, and limited finance for small business is crucial to energizing African economic diversification. Aid and investment need to be targeted to meet the specific needs of African regions. Improved infrastructure will facilitate business and encourage entrepreneurship.

The current administration’s support for economic growth in the EAC must be based on a shift away from AFRICOM as the central policy goal for the region and toward supporting healthy economic development, which would go a long way toward improving regional security. While AGOA and other initiatives might support trade development in the long term, investment in economic development, EAC university research networks, and targeted support for domestic African industrial development will all be necessary if the United States is to see the emergence of prosperous and secure regional trading blocs across the continent.

Hamish Stewart is an urban development consultant with Geoffrey Payne and Associates in London and Marco Picardi is an independent researcher. They are contributors to Foreign Policy In Focus.