Promoting African Investment
Washington continues to fall behind China diplomatically and symbolically in engaging with African countries. However, in the commercial arena the United States is starting to look for meaningful ways to enhance and elevate its Africa policy.
Competing forums over the last month provide a telling juxtaposition: The Chinese state supported the China Africa Economic and Trade Expo in Hunan Province, while the Forum on China-Africa Cooperation summit review was held in Beijing. These drew more than 50 African heads of state, with Chinese Foreign Minister Wang Yi giving a keynote speech. The Corporate Council on Africa’s summit in Maputo, on the other hand, was attended by seven heads of state and no U.S. government cabinet officials. In the context of global economic competition with China, the United States is playing catch-up. Now is the time to double down on investments in commercial diplomacy.
Early steps have been taken to shore up the pillars of U.S. commercial diplomacy. The passage of the BUILD Act in October last year greatly expanded and empowered the Overseas Private Investment Corporation (OPIC), the U.S. development finance agency. The Build Act doubled OPIC’s capitalization to $60 billion and allows it to invest equity in funds and projects abroad. The super-sized OPIC, which will be called the Development Finance Corporation (DFC) and will become operational this October, shows that the United States is ready to commit the funds needed to seize the opportunities of developing markets. African markets constitute the largest regional portfolio of the current OPIC, and that will likely grow under the new DFC.
Better late than never
Now, the Trump Administration has officially launched an Africa-specific program, which it has named Prosper Africa. Outlined in three different speeches at the summit in Maputo, the U.S. government presented a program that aims to double two-way trade and investment between the United States and African countries. It hopes to do this by improving coordination among U.S. government agencies engaged in commercial diplomacy; promoting African opportunities to U.S. companies; continuing to support regulatory reform in African markets; and better utilizing U.S. trade and investment hubs on the continent. A more hands-on approach through matchmaking and “deal facilitation teams” was emphasized in a speech by USAID’s Mark Green that outlined at least eight elements of the new program.
American efforts are late in coming. Sub-Saharan Africa will boast half of the world’s fastest growing economies over the next five years. It is home to more than 400 companies with revenues exceeding $1 billion, and its manufacturing output is on pace to double in the next 10 years. Meanwhile, steady population growth and a rapidly expanding youth demographic will ensure an ample labor force for companies operating on the continent. China has strategically integrated African countries into its global plans for increased political and economic influence. So have Russia, the United Arab Emirates, Turkey, and India.
The United States must do more than the Prosper Africa plan proposes to make sure U.S. companies do not miss out on emerging African opportunities. Doing so requires an effort to maximize existing tools and draw upon American ingenuity to create new ones. As it did with the new DFC, the Trump administration should focus on expanding, reinstating, and prioritizing existing programs across the federal and state level to better promote investment into African markets. At the same time, it should experiment with ways to leverage the United States’ economic freedom and cultural diversity to create new partnerships. Three ideas follow.
- Amp up Creativity at the Millennium Challenge Corporation
The Millennium Challenge Corporation, created by the George W. Bush administration in 2004, could be better utilized to advance the stronger U.S.-African trade and investment ties Prosper Africa envisions. Now that the Corporation has a President who can advance new initiatives, it can finally take advantage of some flexibility in the original legislation, as well as new opportunities provided by 2018 Modernization Act.
The MCC has always had the authority to enter into compacts with private-sector and subnational authorities. Yet since its founding, it has only entered into compacts with national governments. Perhaps realizing the opportunities missed because of this de-facto policy, the Modernization Act called for greater consideration of subnational compacts in partner countries. To date, however, compacts remain exclusively between the MCC and national governments.
The Modernization Act cleared a major hurdle by empowering the MCC to enter into regional compacts and concurrent compacts with partner countries. The board should use this flexibility to look beyond national governments and form compacts with private entities and local governments in an effort to better integrate U.S. and African economies. By identifying local governments and companies in booming cities in existing partner countries, the MCC could work to address real issues that affect millions of people -- all while creating opportunities for American investors. A subnational or city-based approach would allow the Corporation to engage with megacities such as Lagos, Nigeria -- the state alone constitutes Africa’s fifth-largest economy.
- Mobilize US SMEs through the SBA and State Offices of International Trade
A small but rapidly growing middle class is fueling a rise in consumer spending across Africa, yet these markets are still small by international standards. While the Small Business Association sets different thresholds for defining small and medium-sized enterprises by industry, all have revenues under $40 million. These small businesses are well sized to enter, and grow with, African markets.
With offices in all 50 states, the Small Business Association provides crucial support to SMEs across the United States. In 2018, the Association granted nearly 23,500 loans to small businesses while providing advice and training to over 1.5 million entrepreneurs.
In 2010 the SBA created an Office of International Trade to support export promotion among American SMEs, yet the office’s resources do not measure up to the importance of its task. The Office’s signature State Trade Expansion Program was allocated only $18 million, divided among 44 states to fund activities supporting small-business exports. Recognizing the importance of African markets, the Small Business Association led a series of campaigns and outreach events around African opportunities from 2014-2016. Yet this Obama-era initiative was not renewed by the Trump administration.
If the Office of International Trade is to provide targeted guidance on expanding to African markets, it must be funded at a level commensurate with this task. The goal is to resume and expand campaigns that highlight the opportunities Africa holds for SMEs. This would help ensure that American small businesses are aware of Africa’s growing potential, and that they can take advantage of the opportunities Africa presents.
The federal government should also engage state offices of international trade to help reach U.S. small businesses. Florida is the only state with an office on the continent, in South Africa. This helped the state’s trade with South Africa reach nearly $300 million in 2017. The other state offices dedicated to supporting local companies are under-resourced and lack access to good data and expertise on African markets. The administration under Prosper Africa should appoint or hire African investment agents to do roadshows to key U.S. cities, working with the SBA and the U.S. Chamber of Commerce to target state offices of international trade.
- Create a U.S. honorary commercial consul network in African markets
While countries across Africa have made significant progress in simplifying processes for potential foreign investors and businesses, the local complexities of expanding to African markets can still be significant. U.S. embassies and consulates across the continent should leverage the experience and expertise of U.S. citizens who have successfully navigated a country’s unique business environment. Creating a commercial consul program would put these entrepreneurs in a position to advise and assist American companies and investors.
Most countries employ an honorary consul program to expand consular services to different cities, or to provide them in countries without an embassy. Honorary consuls are citizens who live and work in the host country and volunteer to provide services to other citizens. The United States has long had the Warden System for U.S. consular service -- wherein U.S. citizens across a country act as points of contact for disaster preparedness and emergency assistance. These types of consular-extension volunteers are becoming less relevant in an age of smartphone alerts and greater connectivity. Many countries have therefore developed their honorary consular programs to have more of an economic and business-development purpose.
In its effort to facilitate more investment into African markets, Prosper Africa could work with the Department of Commerce to establish an honorary commercial consul program that would give new U.S. investors access to an invaluable network of American businessmen and women in the market. A great example of how these American commercial linkages can work is Dick Kramer in Nigeria. Though he recently retired and returned to the United States, Kramer was known by all as a tireless champion of Nigeria’s economic potential, and he dedicated much of his life to promoting the country’s opportunities to interested Americans and the world. By engaging people like Kramer who have established networks and have achieved business success, the United States could quickly establish an invaluable platform to which U.S. companies could turn for commercial guidance in countries throughout Africa.
The United States and the Trump administration have taken important steps recognizing the importance of this moment. Now is the time to maximize all the tools of commercial diplomacy that can enhance U.S. competitiveness in African markets. In the vein of Prosper Africa, taking advantage of these opportunities does not require reinventing the wheel. What it does require is a committed, concentrated refocusing of current resources, and a willingness to experiment with new approaches. Doing so will bring mutual benefits for decades to come.
Aubrey Hruby is a senior fellow in the Atlantic Council's Africa Center. The views expressed are the author's own.