Why you should care
Sub-Saharan Africa has some of the world’s fastest-growing populations and economies. The U.S. needs to up its game to avoid losing out on opportunities.
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The rise of Africa’s middle class could be the story of the 21st century. Asia and Europe have been on to this — leading the way with trade and investment — and now the United States is starting to wake up to the potential.
“The largest workforce on earth will be in Africa in 2030,” noted Delaware Sen. Chris Coons, the Democratic chairman of the chamber’s Foreign Relations Subcommittee on Africa. “There is a huge youth bulge.”
In less than 50 years, the continent’s middle class is projected to exceed 1 billion. And that means consumers ready to spend money on household goods and services like banking and health care. Countries like China, India, France and England have already dotted the continent with investments, trade offices and infrastructure projects.
But U.S. businesses have been lagging, and it will take a big effort to catch up. The U.S. government has recently taken the lead.
It started with President Obama’s swing through Senegal, Tanzania and South Africa last summer, visiting regional partners and launching a new initiative, Power Africa, to promote American investment in the continent’s energy sector. Earlier this spring, Obama’s Secretary of Commerce, Penny Pritzker, led a trade mission with 20 U.S. companies to Nigeria, Ghana and Ethiopia.
And next week, the Obama administration is hosting its most high-profile gathering of all — the U.S.-Africa Leaders Summit, an unprecedented gathering of nearly 50 African heads of state, along with African and American CEOs and civil society leaders, in Washington. The theme: “Investing in the Next Generation.”
“This is the moment to take our partnership to the next level,” White House National Security Adviser Susan Rice said earlier this week.
They’ll have to, or American businesses could miss out.
That, at least, is the worry of many Africa boosters in the United States, who believe Sub-Saharan African countries are now on the verge of busting out, much as Asia did earlier. And it will be driven less by natural resources than demographics.
Of course, America, as the world’s largest economy, has an important presence in Africa. The U.S. remains Sub-Saharan Africa’s No. 1 source of foreign direct investment and is its No. 2 trading partner, eclipsed by China last decade.
But relative to American commerce in other regions and compared to other countries’ engagement, the U.S. is a clear underachiever.
U.S. trade with Sub-Saharan Africa, for example, has more or less flatlined since the middle of last decade. In contrast, European Union trade has more than doubled in the last decade, while the Chinese have grown their trade 17-fold since 2000, going from just $10 billion to more than $170 billion in 2013.
U.S. investment in Sub-Saharan Africa, meanwhile, represents less than 1 percent of what American companies invest overseas. And there’s little diversification. The vast majority of American commerce on the continent is focused on natural resources — oil, gas and metals. Taking advantage of the unfolding opportunities will require a new type of business, focused on that fast-growing middle class.
The theme of Africa in shambles has been so pervasive for so long [in the United States, creating] a mismatch between real and perceived risks.
For decades America has approached Sub-Saharan Africa as a humanitarian cause. Food aid to respond to famines. Peacekeepers to stabilize war-torn societies. President George W. Bush’s landmark PEPFAR program to provide lifesaving HIV-AIDS drugs.
The summit aims to change the focus: “trade, not aid.”
Or as President Obama put it last year in Cape Town, South Africa, U.S.-Africa relations today should be “a partnership of equals that focuses on your capacity to solve problems, and your capacity to grow.”
Right now, Africa’s demonstrating plenty of capacity to grow. GDP growth has been robust so far this century, except for a dip during the global financial crises. It’s expected to pick up again this year, exceeding 5 percent.
Yet major barriers remain: corruption, a lack of law and order, political instability and poor infrastructure all hamper African economies and deter American commerce there.
“There’s also a perception aspect,” says Ben Leo, a Fellow at the nonprofit Center for Global Development and onetime White House staffer on Africa.
“The theme of Africa in shambles has been so pervasive for so long” in the United States, Leo says. And that’s created “a mismatch between real and perceived risks.”
With its colonial ties to the continent, Europe has been less hung-up on those kinds of perceptions and more engaged. And China’s state-run model of commerce in Africa mitigates much of the risk.
In the U.S., the private sector is in the lead, but they still need a helping hand from government to make headway in this politically complicated and financially risky arena.
The test for U.S. leaders in the coming months is whether they’re willing to ante up the money and political muscle to match the changing rhetoric.
A key U.S. trade law to promote African imports expires next September, and Congress is working to reauthorize it — and broaden its reach. Members of Congress have also introduced legislation to institutionalize and expand the White House’s Power Africa initiative. Advocates hope that next week’s summit will provide momentum for those aims, not to mention for other investment agreements and funding for more trade-promotion programs and personnel in Sub-Saharan Africa. More than anything, the summit should open eyes in America’s business community to Africa’s economic potential.
That could help to unleash America’s competitive advantages: a large African diaspora, the most advanced financial sector in a part of the world hungry for capital and services, and plenty of goodwill from African publics. All that’s missing is the motivation. And that’s starting to change.