Sub-Saharan Africa: the overseas business challenge of the 21st century

Africa is important to the United States on several levels. It is the ancestral home of more than 33 million Americans. It is the world's most needy region, whose wealth of human and natural resources remains underdeveloped. And it is a window on the difficult development and humanitarian problems facing the world in the 21st Century. President Clinton has said that the challenges the world will face tomorrow are mirrored in the challenges Africa is facing today.

The American experience holds a particular relevance for Africa, because our peoples share many common goals and common aspirations: democratic, responsive governments; basic human rights and personal security; freer movement of people, goods, and ideas; and prosperity based on free markets. These natural linkages place Americans in an enviable competitive position in Africa, but a position that U.S. business has not always pursued aggressively.

Instead, Americans tend to associate Africa with a continuous cycle of crisis and suffering. Today's agonizing images of refugees in Central Africa are only the latest chapter in the recurring themes of famine, disease, tribal conflict, political instability, and general economic stagnation. However, in the closing years of the Twentieth Century, Africa is undergoing unprecedented political and economic change which is largely ignored by the U.S. media. A democratic tide is sweeping across Africa and bringing with it the concepts of predictability, accountability, and the rule of law. By no coincidence, these concepts are essential elements in building a climate of business confidence. The transformation sweeping across the African continent is opening the region to commercial opportunity as never before.

Africa's Global Trade

As economic reforms are implemented, African countries are gradually becoming larger players in the global trading system. In 1995, the countries of Sub-Saharan Africa represented a total import market of $81 billion, while their combined exports approached $76 billion. The United States was Africa's fifth leading industrial country supplier, with a market share of just under 7 percent. U.S. exports trailed behind those of France, Germany, the United Kingdom, and Japan.

Propelled by surging shipments to South Africa and a rebound in sales to Nigeria, U.S. merchandise exports to the Sub-Saharan region expanded nearly 23 percent in 1995, compared with less than 14 percent growth in U.S. global exports. Sales to Africa were 54 percent greater than our exports to the New Independent States of the former Soviet Union. U.S. exports to South Africa alone were roughly equal to our sales to Russia, and greater than those to all the countries of Eastern Europe combined. Robust growth continued in 1996, with U.S. shipments to Sub-Saharan Africa in the first nine months running 13 percent ahead of the same period in 1995.

U.S. investment in Africa has also outperformed U.S. investment worldwide. At year-end 1995, the U.S. direct investment position in Sub-Saharan Africa stood at over $5 billion, with South Africa accounting for a quarter of the total. In 1994, U.S. direct investment in Sub-Saharan Africa by non-bank affiliates of U.S. enterprises generated a 30 percent return on book value, compared with 11 percent worldwide, 14 percent in Latin America, and 12 percent in Asia and the Pacific region. During the period 1990-94, the average annual return on book value of U.S. direct investment in Africa was nearly 28 percent, three times the rate of return worldwide.

U.S. investment in Africa boosted U.S. exports and helped to fuel American industry. Some $400 million of U.S. merchandise exports in 1994 were shipped to U.S. majority-owned non-bank affiliates in Africa, including those in North Africa. The United States imported over $3 billion from these affiliates, mostly crude oil.

Despite recent growth in U.S. trade and investment, Africa remains the last frontier for U.S. exporters and overseas investors. Much of the U.S. business community has long regarded Africa as a preserve of the former European colonial powers. The late Secretary of Commerce Ron Brown challenged that self-fulfilling prophesy, and he committed the Department of Commerce to a set of initiatives designed to broaden and deepen U.S. commercial involvement in Africa.

South Africa Initiative

Much of the initial commercial focus was on South Africa, whose economy dominates the continent and whose excellent infrastructure is a key to development throughout Southern Africa. South Africa accounts for half of Africa's total production and claims more than half of U.S. exports to the Sub-Saharan region.

South Africa's success in building a free enterprise democracy is of paramount importance to all of Africa, because many American firms view South Africa as the region's growth engine, low-cost supplier, and a logical base of operations for all of Africa. These considerations led the late Secretary Brown to designate South Africa as one of the world's ten Big Emerging Markets, where potential for U.S. export growth is particularly strong. The Commerce Department program in South Africa includes an intensive trade promotion program, as well as measures to influence development of South Africa's commercial policy, open its market opportunities, and encourage closer economic and commercial integration with its neighbors. Secretary Brown assigned a senior Minister Counselor for Commercial Affairs to South Africa, with responsibility to operate a regional program for all of Southern Africa.

The United States and South Africa established two new organizations, one to foster private sector initiatives and the other to facilitate government-to-government contacts. The Business Development Committee (BDC) is comprised of selected representatives of each country's private sector and co-chaired by the U.S. Secretary of Commerce and the South African Minister of Trade and Industry. The Binational Commission (BNC), co-chaired by Vice President Gore and Deputy President Mbeki, consists of six committees including one on Trade and Investment, each composed of senior government officials of both countries. Both organizations work to remove business impediments and ensure close bilateral cooperation to support private enterprise. The BNC and BDC held their combined semi-annual meeting with their South African counterparts in Washington, July 22-23,1996, and made excellent progress in strengthening the bilateral commercial partnership. They will build on that progress at their next joint meeting, to be held in South Africa in February 1997.

The flourishing commercial relationship between the United States and South Africa has paid big dividends for both sides. U.S. exports to South Africa have grown more than 25 percent in two years, and investments have surged as well. More than 270 U.S. firms have established affiliates in South Africa, according to the Investor Responsibility Research Center, and these enterprises employ some 75,000 South Africans.

The United States and South Africa are cooperating in the fields of commercial law and tourism development, and have made substantial breakthroughs in resolving issues in intellectual property rights protection, civil aviation services, and tariff classification which threatened to hamper further commercial expansion.

Initiatives Beyond South Africa

As the South Africa Initiative continues, the United States is fully engaged in the rest of Africa as well. To maximize scarce resources, three of the existing Commercial Service offices in Africa--Abidjan, Nairobi, and Johannesburg--have taken on regional outreach responsibilities in cooperation with their State Department colleagues in neighboring diplomatic posts. The regionalization of the Commercial Service enables the Department of Commerce and the Department of State to combine their efforts in trade promotion, business facilitation, and direct support for American companies. The Commercial Service has provided training to State Department officers and Foreign Service Nationals on Commerce programs and services. The regional offices are also developing integrated plans for commercial promotion throughout Africa's sub-regions. For example, the Abidjan office arranged for a large buyer delegation from throughout West Africa to visit the National Association of Home Builders trade show in Houston in January 1997. The Johannesburg office sponsored a successful trade mission to Mauritius by U.S. company affiliates based in South Africa, and is planning similar missions to Angola, Mozambique, and Zimbabwe.

With Africa's own financial resources severely constrained, the operations of the multilateral development banks take on increased importance. The Commercial Service has assigned officers to each of the banks, including the World Bank and the African Development Bank, to help U.S. exporters participate in the banks' project procurements and to help resolve procurement problems (see page 31 for an article on the African Development Bank).

The Departments of Commerce and State also continue their outreach to U.S. business through the annual "Conference on U.S. Trade and Investment in Africa." The conference is co-sponsored each year in a different U.S. city, in cooperation with the Corporate Council on Africa and selected local organizations. As the government's largest outreach program on Africa to the U.S. business community, the conference involves selected U.S. Government agencies--the Departments of Commerce, State, Treasury, Agriculture, and Energy, the Export-Import Bank, the Overseas Private Investment Corporation, the U.S. Trade and Development Agency, and the Agency for International Development (AID) -- the multilateral development banks, local trade organizations, and the private sector. The 1996 conference in Houston attracted an audience of nearly 250, and plans are proceeding to sponsor the next conference in Scottsdale, Arizona, May 1-2, 1997.

Clinton Administration 's Africa Policy

The White House is finalizing the second of five annual reports to Congress on a new Comprehensive Trade and Development Policy toward the Countries of Africa. The Clinton Administration is the first to develop such a policy toward a region long overlooked in U.S. foreign economic and commercial policy. The first report, transmitted in February 1996, stressed that the U.S. relationship with Africa has entered a new phase, based on trade rather than aid. The Administration committed the United States to helping Africa in various ways to build a future based on democracy and tree markets:

[check] to participate in bilateral and multilateral efforts to support those African countries that pursue meaningful economic and regulatory reform;

[check] to support efforts to improve essential government and non-governmental institutions and physical infrastructure; and

[check] to help create a more growth-oriented African business climate that will generate trade opportunities and attract both domestic and foreign investment.

The private sector will have the lead role in helping Africa to alleviate poverty and build prosperity, and the U.S. Government will work with African governments to identify and remove impediments to the functioning of free markets. The Africans themselves must empower their own private sectors to partner with U.S. enterprises. The second annual report builds on the momentum of the first and proposes a number of new initiatives in the areas of economic and regulatory reform, trade liberalization and promotion, investment liberalization, private sector development, and infrastructure enhancement.

Shortly after the White House transmitted the February 1996 report to Congress, Secretary Brown led an historic Commercial Development Mission to Africa, which demonstrated clearly just what the Administration policy envisioned. The mission visited five countries: Cote d'Ivoire, Ghana, Kenya, Uganda, and Botswana. In each country, major initiatives were undertaken with African governments and private sector representatives to begin a lasting process of economic and commercial expansion based on close cooperation with American companies.

During the mission, Secretary Brown signed a Memorandum of Understanding between the Department of Commerce and the Southern Africa Development Community (SADC) aimed at increasing trade and investment ties between the United States and that important twelve-country regional organization (see article on page 26). The SADC agreement complements the Initiative for Southern Africa implemented by AID, designed to help SADC increase regional trade and economic integration. Secretary Brown also opened a new Commercial Service office in the U.S. Embassy in Accra, Ghana, acknowledging the growing interest of U.S. business in Ghana as that country aggressively implements economic reforms.

TPCC Africa Working Group

After his mission to Africa, Secretary Brown moved to further consolidate the U.S. commercial partnership with the region by establishing a permanent Africa Working Group of the interagency Trade Promotion Coordinating Committee (TPCC). Under the direction of Assistant Secretary and Director General Lauri J. Fitz-Pegado, the Africa Working Group convenes periodically to help formulate and implement U.S. trade and investment initiatives toward Africa, to address specific problems and impediments to U.S. commercial expansion in the region, and to coordinate U.S. Government measures to resolve them. The Working Group institutionalizes interagency coordination of U.S. Government programs to support a stronger commercial relationship with Africa, and to ensure that the programs continue well into the future.

The Africa Working Group has met with the U.S. business community to exchange views on Nigeria and to ensure that the interests of the U.S. business community are adequately considered in determination of U.S. policy toward that important country. The Working Group is also planning a program of African commercial development missions to the United States. These missions will be organized regionally, and will involve both the public and private sectors of the participating African countries. They will build on the momentum of the Brown mission, further promoting regional development and cooperation between the public and private sectors in Africa and the United States. The first regional commercial mission to the United States will be from the SADC region in April 1997.

Africans and Americans alike point to the unavailability of official project finance as a major impediment to increased U.S. business in Africa. In an effort to facilitate greater access to capital for African projects, the TPCC Africa Working Group organized two Trade and Project Finance Roundtables with banks, multilateral lenders, trade finance consultants, and experienced exporters to discuss issues and impediments in trade and project finance. Participants discovered that extensive capital resources are available to finance African projects, but their terms may be inappropriate for particular transactions. As a follow-up to the Roundtables, the Working Group is examining methods to structure creative financing for viable projects to leverage public and private sector funding. The Working Group will also cooperate with private sector organizations to develop a database of lenders, export credit agencies, and private financing organizations (see article on page 29).

The initiatives underway to support U.S. business in Africa have already borne fruit. American exports to the region are surging, and investment is keeping pace. However, the Clinton Administration intends to do even more to build on the late Secretary Brown's pioneering work to broaden and deepen U.S. commercial involvement in Africa. The Administration will initiate an economic and commercial dialogue with African countries on a regional basis, with the objectives of strengthening market-based economic reforms, promoting regional economic interdependence, and building closer commercial ties with the United States. The Treasury Department has already engaged selected African countries in discussions of economic and regulatory policy. These discussions will be expanded to include commercial issues during the SADC commercial development mission to the United States. U.S. Government agencies will sponsor a forum to assist the SADC countries in implementing the internal trade protocol signed by the SADC nations in August 1996. The economic and commercial dialogue will be part of a new set of initiatives to support further business expansion in Africa, being developed in consultation with Congress.

The Administration will work closely with Congress to ensure U.S. participation in replenishments of the African Development Fund (AfDF), the concessional lending window of the African Development Bank, as well as the International Development Association (IDA), the concessional window of the World Bank. Congress did not appropriate the Administration's FY97 request for a $50 million initial payment on a total $200 million pledge to the AfDF, and appropriated only $700 million of the $934 million requested for IDA. In FY 98, the United States will again seek adequate funding for the AfDF and will work to clear our arrears to IDA and other multilateral development banks. We will also seek to fulfill our commitment to the new IDA-11 replenishment. The U.S. arrearage endangers important development resources for Africa and jeopardizes the ability of U.S. firms to compete for projects financed by these funds in Africa's poorest countries.

The Administration is also addressing the vital issue of Africa's crushing debt burden. Sub-Saharan Africa's total foreign debt exceeds $220 billion, nearly three times its annual exports of goods and services. Even after reschedulings, debt service costs claim nearly 15 percent of total export earnings, making it difficult for African countries to purchase the capital equipment they need for development. The United States has provided more than $1 billion in bilateral debt reduction for 19 African countries, plus multilateral debt reduction within the Paris Club for four additional countries. With strong Administration backing, the 1995 Halifax Summit encouraged the World Bank and International Monetary Fund to consider measures to assist the heavily indebted poorest countries (HIPCs), including many in Sub-Saharan Africa, to address their multilateral debt burdens. In October 1996, the World Bank, IMF, and the Paris Club agreed on a comprehensive framework to help HIPCs needing debt relief beyond current mechanisms to achieve debt sustainability. The initiative will provide relief on a case-by-case basis for eligible countries that show a track record of sound policy implementation and dramatic economic reforms. The Administration is following up on details of country eligibility criteria and participation by other creditors so that implementation of the initiative can begin as soon as possible

The late Secretary Brown's aggressive advocacy for U.S. firms competing for contracts in Africa paid big dividends. U.S. companies won contracts or were positioned to do so in telecommunications, transportation, power generation, water resource development, housing construction, and environmental technologies. France, Canada, Germany, and other major competitors in Africa and elsewhere indicated both admiration and concern for the new determination of the U.S. Government to help Americans win contracts abroad, possibly at the expense of their own firms. This work will continue, under the coordination of the Department of Commerce Advocacy Center. The Advocacy Center is monitoring potential projects throughout Sub-Saharan Africa in the telecommunications, aerospace, infrastructure, and power generation sectors in particular. These projects could total up to $5.5 billion in value, with more than $2 billion in U.S. exports (see article on page 36).

The U.S. Government will continue to closely monitor the trade practices of our major competitors in Africa, including tied aid, association of purchasing decisions with bilateral aid considerations, and bribery. Although Africa has not been a major venue for unfair practices, numerous cases have arisen in recent years. The United States has acted selectively to counter or challenge such actions in the past, and will continue to do so in the future if these measures disadvantage U.S. bidders. Eximbank's Tied Aid Capital Projects Fund (TACPF) is a U.S. trade policy tool aimed at countering trade-distorting tied aid offers in select circumstances. Eximbank has specific guidelines in place for the use of the TACPF to prevent its overuse. The Fund is not an instrument for the routine support of U.S. exports, but it can be used strategically to counter the unfair practices of our competitors if these practices jeopardize broader U.S. market opportunities. Moreover, the United States will press for a level playing field in Africa's growing markets during our upcoming commercial dialogue, and will continue to challenge unfair competition in the Paris-based Organization for Economic Cooperation and Development (OECD).

All these measures combined could help to increase U.S. commercial involvement in Africa. But the biggest boost still must come from the Africans themselves. They must strive for openness and transparency in their business climates, and a true readiness to involve Americans in their efforts to build prosperity. Africans must establish the political will in favor of regional development, to attract U.S. business to larger, better integrated, and more efficient markets. As Africa's commerce becomes more open, and African economies grow increasingly interdependent, interest will naturally grow to take advantage of the opportunities on the last frontier for U.S. business overseas.

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