How African Countries Can Benefit From the Trade War
When elephants fight, it is the grass that suffers. This African proverb is often applied to the continent when discussing macroeconomic matters. Conflict among the world’s great powers frequently leaves us caught in the middle and suffering the consequences. Yet despite the latest round of escalations in the U.S.-China trade war, African countries must reject the fallacy that we will inevitably suffer. While the U.S.-China trade war undoubtedly holds risks for smaller countries in Africa, it also opens up valuable economic opportunities.
Instead of rejecting globalization and turning inward in the face of this bitter trade conflict, we must seek out creative strategies to navigate an increasingly bipolar world. Botswana, where I am the minister of investment, trade and industry, is working to forge a balanced foreign policy. The United States and China each have much to offer African countries and they, along with the rest of the world, have begun to understand the vital importance we will play in tomorrow’s global economy. If we approach Washington and Beijing with tailored strategies that leverage what each country has to offer, we will not just survive the trade war, we will increase our own economic agency for decades to come.
The United States and China can both be strong partners, economically and culturally, as shown by a steady increase in investment over the last few decades. As populations soar and urbanization rises across the continent, a $130 billion-170 billion infrastructure funding gap threatens to curtail prospects for future prosperity. Through its Belt and Road initiative, China has emerged as a key funding source in closing the gap, accounting for over 20% of all infrastructure financing across African markets since 2012. From multi-billion dollar railroads in Nigeria, Kenya, and Angola to a crucial role in establishing a Special Economic Zone in the Republic of Congo, Chinese investments are helping African countries make sorely needed improvements in infrastructure.
While large-scale infrastructure finance may capture the headlines, Chinese investments are transforming a host of other industries in Africa. In Ethiopia, a Chinese-built industrial park is creating tens of thousands of jobs, providing practical skills training and helping to transform Ethiopia into a light-manufacturing hub. Moreover, Chinese telecoms hardware manufacturers such as Huawei and ZTE are building broadcasting networks, data centers, and fiber-cable services on every corner of the continent, from Egypt to South Africa to Nigeria.
Despite rising levels of Chinese financing, the United States remains Africa’s largest foreign direct investor, accounting for more than $50 billion of FDI flows into the region. Many of the largest corporations in the United States -- from Microsoft to John Deere -- are expanding into African markets. Meanwhile, venture capitalists and private equity firms have begun to recognize the growing wave of African entrepreneurship; four of the top five countries with the highest percentage of individuals starting their own businesses are in sub-Saharan Africa, led by Nigeria and Zambia. Global investors have taken note and private equity investment has surged across the continent. Our region of Southern Africa has turned into an investment destination, with private equity investment levels doubling to $2.3 billion in 2017.
Close partnerships with American investors will be crucial for future investment growth. The United States boasts nine of the ten largest private equity firms in the world, and these firms have increased their African investments in recent years. Emerging Capital Partners (ECP) has made more than 60 investments and completed nearly 50 exits in Africa, raising over $3.2 billion in growth capital for African markets since its founding in 2000. Other private equity firms have followed ECP’s lead. Carlyle Group, the largest by total capital raised, established a sub-Saharan Africa Fund in 2011 and has since made strategic investments in industries from health care to financial services and retail across the continent.
Though harnessing the strengths of the United States and China must remain a priority, some ripple effects of the trade war cannot be sidestepped. U.S. tariffs have led to fluctuating commodity prices and local currencies as weakening demand has caused mine closures and job losses. Yet the trade conflict is opening up new opportunities for African countries. Take textiles. Until 2004, WTO quotas limited China’s textile exports. Meanwhile, the African Growth and Opportunity Act (AGOA), passed in 2000, allowed African producers to access the U.S. market duty-free. Initially, textile exports more than doubled from pre-AGOA levels from 2000 to 2004. When the WTO quotas expired, African textile exports plummeted due to increased Chinese competition and never fully recovered to previous levels. As Washington has levied hefty tariffs on Chinese textiles, significant trade diversion is underway, which could provide a fillip to African textile manufacturers. At the same time, Chinese tariffs on American agricultural products hold great promise for agriculture across the continent, creating an opening for outflows of higher value-added agricultural products. From Namibian beef to South African citrus and Kenyan avocados, African agricultural exports stand to benefit.
On economic matters, unilateral strategic partnerships may be necessary to navigate the turbulence of U.S.-China relations. However, this does not preclude multilateral collaboration where mutual interests align. Both the United States and China have played crucial roles in confronting ebola outbreaks. In peacekeeping, the United States remains the largest financial contributor and leading trainer of African personnel for missions on the continent, while Chinese President Xi Jinping has expanded China’s presence in UN missions. On these and other issues where both countries have vested interests, we must work toward facilitating cooperation and partnerships to maximize each country’s contributions.
In Botswana, we charted our own path to economic success. We worked to maximize our natural resources by choosing the right partners at the right time and investing in what matters: health, education, and infrastructure. Yet we are a small country, and we may not always have full control over our economic fortunes. The United States, China, and a host of other countries -- from Japan to India to Russia to the EU and its member states -- are showing increased interest in African markets amid global economic turbulence. By engaging with them, we can work towards a more prosperous future. This is the best way forward for us, and the rest of Africa.
Bogolo J. Kenewendo is the Minister of Investment, Trade and Industry of Botswana. The views expressed are the author's own.