Sub-Saharan Africa: Gulf War and recession cause trade uncertainty - World Trade Outlook 1991

The end of the Persian Gulf War has removed a serious impediment to growth in U.S. trade with Sub-Saharan Africa, but prospects for major expansion remain clouded during the early months of 1991. Recession in the United States and lingering fears of terrorism in parts of Africa may limit trade growth in the first half of the year. However, if the U.S. economy recovers by mid-year, trade could increase more rapidly in the second half, in line with the 11 percent annual average of the past four years.

U.S.-African trade has held up reasonably well so far, despite the Gulf conflict and the sagging U.S. economy. U.S. exports increased 8 percent in 1990 to pass the $4 billion mark for the first time in six years. The expansion was led by shipments of a wide range of drilling equipment to Africa's oil-producing countries, including parts for oil derricks, and floating and submersible drilling platforms. Sales of aircraft and parts, dump trucks, data processing equipment, tractors, and locomotives also performed well. Wheat shipments were up sharply, while rice sales declined. Most of these items should continue to sell briskly in 1991, along with farm and agribusiness machinery, medical equipment, food processing apparatus, and telecommunications gear.

Oil accounted for nearly three-fourths of the $12.7 billion in U.S. imports from Sub-Saharan Africa last year. U.S. purchases from the region declined during the first three quarters of 1990, then rebounded in the fourth quarter on the strength of higher oil prices resulting from the Gulf crisis. However, in quantity terms U.S. oil imports from Africa declined 7 percent, due to the U.S. recession. A rapid U.S. recovery is important to Sub-Saharan Africa, because nearly 15 percent of the region's total exports are bound for the U.S. market.

The Gulf crisis and the U.S. economic downturn have depressed U.S. sales to Africa, but the full extent will not be known until well into 1991. U.S. exports to the Sub-Saharan region grew at an accelerating pace in the third and fourth quarters of 1990, even as the recession took hold and Mideast tensions escalated. However, security concerns heightened with the outbreak of war in January, and transport costs to Africa mounted due to higher freight insurance rates. Many U.S. firms and individuals curtailed travel for fear of possible terrorist activity. Kenya, where tourism is the leading foreign exchange earner, suffered a precipitous drop in tourist traffic from both Europe and the United States.

Security concerns also affected the U.S. Department of Commerce trade promotion program in Africa. The U.S. and Foreign Commercial Service (US&FCS) canceled its planned participation in the International Trade Fair in Kaduna, Nigeria in February, and postponed the USA-West Africa Expo in Abidjan, Cote d'Ivoire until 1992.

Although the full impact of the Gulf crisis on Africa is yet to be seen, the effects have been mixed so far and evidence indicates that the gloomiest predictions were overstated. No African economies have collapsed, and it is unlikely that any will be pushed over the edge. Higher oil prices brought a sizable windfall to a handful of African countries, while the majority suffered an additional strain on their limited hard currency earnings. The World Bank and International Monetary Fund (IMF) are amending their lending rules to provide additional economic assistance to countries hurt by higher oil prices and lost worker remittances. However, borrowings from the Bank and Fund will further increase Africa's estimated $150 billion foreign debt, further inhibiting the region's import capacity. Fortunately, the upsurge in oil prices was short-lived, limiting the overall damage.

By the same token, the windfall to Africa's oil exporters was considerably smaller than anticipated. Nigeria, which supplies about two-thirds of the region's oil production, purposely understated the favorable balance-of-payments effect of the windfall in planning its 1991 budget. The Nigerian government intends to use its increased oil revenues to rebuild its depleted foreign exchange reserves and retire some of its foreign debt, rather than undertake expensive new development projects. Although this policy diminishes the opportunities open to U.S. exporters this year, it makes good sense for Nigeria's long-term economic health and could lead to better opportunities down the road.

Reform Momentum Continues

One of the most serious potential dangers of the Gulf crisis for Africa was that countries might abandon the programs of economic reform and market liberalization which many have pursued for several years under the auspices of the World Bank, IMF, and bilateral donors. More than 30 countries have instituted reform measures, including exchange rate adjustments, privatization of state-owned enterprises, improved fiscal discipline, relaxation of government controls, and market liberalizations. In the face of the Gulf crisis, a few instituted new trade restrictions or postponed the scheduled implementation of certain reform measures to protect their dwindling foreign exchange reserves. In some cases, import licenses and dividend repatriations were delayed, shaking business confidence. However, most African countries remained committed to economic structural adjustment despite the Gulf crisis, and in some cases, despite civil unrest at home.

Africans have come to appreciate the connection between open markets and economic growth. This is leading to a larger African stake in an open international trading system. The expansion of world trade over the past three decades has brought unparalleled global prosperity, but has largely bypassed Africa. The region's share of world markets declined by nearly half between 1970 and 1987, and the growth rate of Africa's exports was negative throughout most of the 1980s.

As the African countries progressively open their economies, they will inevitably grow more competitive and better prepared to participate in the global marketplace. Their long-term prospects for greater prosperity through trade depend heavily on the success of the Uruguay Round of Multilateral Trade Negotiations. The breakdown of negotiations last December signaled greater protectionism in markets important to African exporters. Resumption of the talks in February was welcome news for the African countries, and for the world generally. Although the Africans have not been active participants in the Round, several of its major issues are of keen interest to Africa, specifically trade in agricultural goods, tropical products, and textiles and apparel. Extensive work and tough negotiations lie ahead, but a successful Uruguay Round may help integrate Africa more fully into the global trading system, where the region can benefit from the advantages of free trade. This process will further boost Africa's movement toward market liberalization.

As the accompanying articles illustrate, Africa's economic reforms hold out potentially lucrative trade and investment opportunities for U.S. firms. The Department of Commerce is assisting U.S. exporters to penetrate Africa's markets through its conference outreach program and a carefully chosen schedule of trade promotion events. In April, the Department co-sponsored with the State Department its annual Conference on U.S. Trade and Investment in Africa, in Philadelphia. In May, the US&FCS will sponsor two trade exhibitions in Lagos, Nigeria: one in computers, telecommunications, and office equipment, the other in medical equipment. Both themes have met with huge success in Nigeria in the past. In the fall, the US&FCS will hold the second USA-East Africa Expo in Nairobi, Kenya.

Despite the economic progress of the past several years, Africa remains the world's neediest region. Above all else, Africa must marshal its own vast human and material resources for development. The greatest contribution of the U.S. private sector is to work with Africa's entrepreneurs, assisting in their efforts to build viable free enterprise institutions. This process will help to ensure Africa's future participation in growing world prosperity.

COPYRIGHT 1991 U.S. Government Printing Office
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