A main topic of this week’s U.S.-Africa Summit was trade. The United States has an interest in developing trade with Africa, and it is obviously important to Africa. Focusing on trade rather than simple aid is a big improvement. But is African development really in the hands of President Obama?
From an American perspective the summit was an attempt to reinvigorate the U.S. relationship with the continent. In economic terms America has lost ground there. China has been the first partner of Africa for five years now. China-Africa trade increased 17-fold between 2000 and 2013, reaching $170 billion last year. Africa-Europe trade stands at $200 billion, more than thrice the U.S.-Africa amount, which fell to $60 billion last year. And the European Union’s new partnership agreements with African countries are expected to divert trade from the United States.
Seen from Africa, many expected the summit to be an opportunity to exert pressure for an extension of the African Growth Opportunity Act (AGOA). Passed in 2000 under the Clinton administration, it will expire in 2015, and Congress will have a major say in its extension. AGOA enables African exporters to sell some 6,000 products in the U.S. market without tariffs. Africa-U.S. trade has increased 500 percent since the AGOA was enacted (despite last year’s decline).
Free Trade Begins at Home
Of course many in Congress expect reciprocity. And they are right (though perhaps not in the way they mean it), as African consumers would benefit from cheaper U.S. imports. Yet from an African perspective, the problem is bigger than mere reciprocity. While trade has increased dramatically, today 90 percent of African exports to the United States are natural resources, mostly oil. AGOA did not generate diversification in the African economies – that is, it did not generate real economic progress (as opposed to mere GDP growth due to the bounty of oil).
The reason might lie in Africa itself. The business environment in many African countries is still deleterious to development. The Economic Freedom of the World Index ranks most African nations at the bottom. The Democratic Republic of the Congo, which holds spectacular natural resources that the world wants to buy, ranks 183th in the Doing Business report. AGOA or not, the problem lies first on the African side. African free trade with America would be nice, but why not start at home?
Aid for Trade?
In this spirit, the U.S. government has pushed complementary initiatives to help improve the business climate. But while AGOA was a laissez-faire measure, these government initiatives are more activist and therefore plagued with problems.
One obstacle to African development is the lack of electricity. Under the current system, only 30 percent of the sub-Saharan population has access to electricity -- half of that in rural areas. Without a reliable electrical infrastructure, it is difficult for companies to be run reliably and thus to compete at the global level. Electricity is an indirect fuel for trade.
Last year President Obama pledged to help Africa with its power shortages. With the U.S. government promising $7 billion a year (and the private sector is expected to match this), the Power Africa initiative is supposed to double access to electricity in the next five years. That may look good on paper, but it will be far from enough to actually power Africa. Nearly $100 billion annually would be needed over ten years.
But worse, history is full of such falsely generous “deals”. They always come at a high cost of cronyism and lack of local accountability -- not exactly what African countries need today.
Another initiative, the Partnership for Trade Facilitation, aims at improving Africa’s trade infrastructure. Slow and inefficient customs and facilities are indeed obstacles to trade, both with the United States and rest of the world, as well as within the continent. More efficient procedures should boost trade. Of course implementing the improvements can be costly, and many African representatives are demanding foreign aid to finance it.
Yet many procedures could be easily simplified at minimal cost -- provided corruption does not get in the way. True, improving ports requires investment, but for several African countries, wouldn’t that be good use of oil money? Of course, any need may conveniently serve as a pretext for more foreign aid, and bureaucracies on both sides have a vested interest in more aid. But as more than 60 years demonstrate, foreign aid does not work.
Are we not back to square one? Foreign aid, even when intended to facilitate trade, is not the solution.
The future of Africa lies in the hands of Africans themselves -- not of their presidents, who just spent millions in taxpayer money for their trips to Washington, D.C. African individuals, entrepreneurs, and firms must pressure their governments to remove all obstacles to trade and opportunity -- not only with the rest of the world but within and among their own countries. More external aid will likely undermine this relationship and prolong political unaccountability and cronyism. Acting through civil society, Africans should find ways to facilitate trade.