Sub-Sahara Africa offers business opportunities in midst of crisis; dramatic drop in trade with U.S. was reversed in 1984

SUB-SAHARA AFRICA OFFERS BUSINESS OPPORTUNITIES IN MIDST OF CRISIS

Dramatic Drop In Trade With U.S. Was Reversed In 1984

The dramatic drop in U.S. trade with Sub-Saharan Africa experienced during 1982 and 1983 was reversed in 1984, as two-way trade registered a marginal increase from the depressed level of a year earlier. U.S. exports grew 2 percent to $4.4 billion, while imports were flat at $10.5 billion (f.a.s. basis).

The limited 1984 trade expansion does not indicate that Sub-Saharan Africa is finally emerging from its prolonged economic crisis. Total U.S.-African trade was still well below the 1982 level, and a third below the high point registered in 1981.

Moreover, a disturbing shift took place in the composition of U.S. shipments during 1984, with sales of agricultural commodities claiming an increased proportion of total exports. From a historical level of about 18 percent of total shipments, U.S. farm commodities surged last year to 30 percent. That means that more of the African countries' scarce foreign exchange revenues are being claimed by emergency food imports, leaving less available for purchases of capital equipment which these countries need for development.

The United States continues to run a sizeable trade deficit with the Sub-Saharan region, although the gap has narrowed in recent years as U.S. oil imports have fallen. The 1984 deficit was $6 billion, and the cumulative gap since 1980 totals more than $43 billion in Africa's favor. The persistent trade advantage to the African countries represents a powerful growth stimulus to their economies, but its benefit remains unevenly distributed. The advantage has accrued overwhelmingly to a small handful of countries near the Gulf of Guinea along West Africa's coast, which export oil to the United States.

The U.S. trade performance in Africa cannot be expected to improve dramatically during 1985, due in large measure to the overvalued dollar. The high dollar exchange rate has squeezed many U.S. goods out of Africa's capital-scarce countries, leaving our major competitors a large price advantage. The inflated dollar has also partially insulated the oilimporting African countries from the benefits of lower world oil prices, thus further prolonging their economic problems.

Africa's economic crisis is multifaceted, but its basis lies in the failure of the region's agriculture. Some 14 million Africans remain at risk from the worst drought on record. The continuing famine has already claimed thousands of lives, and many more will perish despite the world's generosity. However, even in better times food supply and demand are delicately balanced in Africa.

Over the past 25 years Africa's population has doubled, and at the current growth rate of 3 percent a year it will double again within 23 years. Unchecked population growth and stagnant farm output have made Africa the only area of the world to suffer negative per capita growth in food production over the last decade.

The problem has been aggravated by falling export earnings and an accumulation of foreign debt. The total value of exports from Sub-Saharan Africa declined by 25 percent between 1980 and 1983, forcing a retrenchment in capital flows and severe austerity in import regimes. Total external debt grew from 72 percent of exports in 1973 to 224 percent a decade later, while the portion of export revenues devoted to debt service payments rose from 8 to 25 percent. African countries accounted for 35 of the 51 official debt reschedulings of the past five years.

Donor Focus on Agriculture

In view of the central nature of Africa's poor agricultural performance to the region's economic deterioration, it is not surprising that agriculture is the focus of donor activity. Some of the assistance provided under donor programs gives rise to commercial opportunities which would not otherwise exist.

U.S. bilateral economic aid to Africa has grown 20 percent since 1983, and now exceeds $1 billion. Included in the total is some $200 million for Commodity Import Programs (CIPs) in nine countries. CIPs are a form of non-project assistance through which AID makes dollars available to the assisted country on a loan or grant basis to purchase essential commodities and capital goods from the United States. Farm implements and equipment figure prominently in CIPs, which have enabled U.S. suppliers to retain a representative share of several of Africa's shrinking markets.

Since last October the United States has also committed more than a quarter billion dollars to provide emergency food aid and related assistance to Africa. Including regular AID-supporting food programs, U.S. food assistance to the region totals nearly $600 million so far this fiscal year.

The African Economic Policy Reform Program earmarks $75 million in FY85 for support to selected African countries in their efforts to implement growth-oriented policy reforms in agriculture. The U.S. Government is now identifying appropriate recipient countries. A number of other bilateral donors plan to institute similar programs.

Multilateral donors are also promoting reform in agricultural policy, and some of their activities may offer opportunities to enterprising exporters. The World Bank has established a special facility for Africa which will provide financing of policy reforms as part of Bank-supported structural adjustment programs over the next three years. More than $1 billion has been pledged to the new facility so far.

Agricultural development, clearly the top priority in most African countries, will continue to present opportunities to U.S. exporters in 1985. As the accompanying articles point out, selective opportunities also exist in other fields, notably highway improvement, port construction, and power generation. In a few countries, small computers, pharmaceuticals, and communications equipment may find markets.

Africa has never been an easy area to do business, and it has become doubly difficult due to its depressed economic condition. However, the potential long-term rewards for persistence are high, and the support mechanisms constructed by the donor community are helping to create opportunities in the midst of economic crisis.

Table: U.S. Trade with Sub-Sahara Africa

COPYRIGHT 1985 U.S. Government Printing Office
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