Many Africans are very excited about President Obama’s visit to Africa. So, we at the Brookings Africa Growth Initiative contacted our think tank partners on the continent and asked them what Obama should emphasize during his visit to the region.
Please read what my colleagues from the Development Policy Research Unit (DPRU) at the University of Cape Town, the Nigerian Institute of Social and Economic Research (NISER), the Kenyan Institute for Public Policy Research and Analysis (KIPPRA), and I have to say:
Doing Business in Africa is a Move Obama Should Encourage
Anne Kamau, Africa Research Fellow, Africa Growth Initiative
In the last few decades, Africa has been successful in improving its business environment, removing non-tariff barriers, enforcing the rule of law and strengthening political institutions. As a consequence, its economies are growing rapidly and presenting the world with profitable opportunities for investment. Brazil, India, China and Turkey have recognized and taken advantage of these opportunities; comparatively, the U.S. has not.
A greater economic partnership between Africa and the U.S. would be mutually beneficial. Africa could benefit from the transfer of technological know-how of U.S. corporations and learn good business practices, which would further improve the investment climate in the region. U.S. businesses, on the other hand, could expand their operations, capitalize on relatively inexpensive labor and make money. With almost one billion people and a rising middle class, Africa’s demand for consumer goods is rapidly increasingly.
The recent visit by President Obama is a step in the right direction in bolstering economic ties. However, his government could do more by engaging in publically visible and commercially oriented diplomacy on the continent. It could send its high-ranking officials to Africa more frequently and could station greater numbers of commercial attachés there. These efforts would help mitigate the image that American businesses often have of Africa: as a place that is too financially risky to enter, too corrupt and too politically instable. Increasingly, these labels are misconceptions and are depriving Africa and the U.S. of doing more business with each other and enjoying the substantial benefits that would ensue.
The Visit of U.S. President Obama to South Africa: South Africa’s New Challenges
Haroon Bhorat, Professor of Economics at the University of Cape Town and Director, DPRU
When President Obama arrives in South Africa for his first presidential visit this week, he will encounter an economy struggling on two fronts: First, South Africa is still tackling the real economic consequences of the global financial crisis. Second, the country is still attempting to overturn the economic consequences of apartheid that remain deeply embedded in the structure of South Africa’s economic and social relations.
The U.S. has a growing economic relationship with South Africa. According to the office of the U.S. Trade Representative, “U.S. goods and services trade with South Africa totaled $22 billion in 2011.” This made South Africa the U.S.’s 36th most important trading partner. Given South Africa’s economic challenges and the important trade relationship with South Africa, Obama should give some thought to the constraints on higher, inclusive economic growth faced by all African countries. In particular, U.S. reflection, advice and support may be helpful in addressing South Africa’s and other African countries’ economic constraints as well as seizing their unique opportunities.
South Africa, despite experiencing no banking crisis of its own as well as no large reduction in growth rates, witnessed one of the biggest post-crisis downward adjustments in employment in Africa and amongst the cohort of G-20 economies. Employment in South Africa had reached a peak of just over 14 million late in 2008, but then in the face of the global financial crisis, 900,000 jobs were lost leading to an unemployment rate that stood at 25.4 percent for the third quarter of 2012 (this estimate comes from The Development Policy Research Unit at the University of Cape Town, Monitoring the Performance of the South African Labor Market report). Over four years later, the economy has only clawed back 487,000 of the jobs lost. Herein lies one of the significant post-crisis issues facing domestic policymakers: How can we engender a policy environment that is conducive to both higher short-run economic growth and far more aggressive employment growth in order to recover from the crisis? Neither economic nor employment growth have been present in the period since the recession, and there is little evidence that higher growth rates, similar to those in many African economies, are likely to arrive soon.
Part of the reason these high growth rates are unlikely to be achieved lie within the second, long-term struggle facing South Africa, a struggle that is in large part a function of the economic legacy of apartheid. This struggle created structural barriers—defined by an economy dominated by large firms and large unions to the exclusion of the informal sector and the unemployed—to economic growth and greater economic and social development. In a society where over one-quarter of the work force are unemployed and the Gini coefficient is over 0.6, the returns from economic growth are being channeled to the organized, the educated and highly skilled, and the well networked. Let me be clear, this is not a deliberate strategy on the part of the powerful and the elite. Rather it is reflective of the deep structurally embedded challenges South African faces where economic growth is strangled by the unemployed, the less skilled, those in rural areas, and the absence of small firms. This is an economy still highly dependent on too small a sample of large, dominant enterprises for value-added production, employment creation, tax revenues and foreign exchange earnings.
President Obama’s visit to South Africa and meetings with high-level decision-makers offer a chance to discuss these issues vital to the South African economy and our continued trade relationship. In particular, policymakers should focus on:
- How best to promote and build a dynamic, fast-growing microenterprise sector;
- How to utilize FDI and trade flows between South Africa and the U.S. to promote a competitive, employment-intensive light manufacturing sector; and
- How to improve the efficacy of the product and factor market regulatory system, which reduces disincentives to hire workers and encourages firms to grow and invest.
Ultimately, through fixing these micro-foundations of growth, South Africa may have some chance in converting its sclerotic growth rates to those levels found in the rest of the continent.
Rethinking U.S.-Africa Engagement during President Obama’s Trip to Africa
Augustus Muluvi, Policy Analyst, KIPPRA
Paul Odhiambo, Policy Analyst, KIPPRA
President of United States Barack Obama is visiting Senegal, South Africa and Tanzania between June 26 and July 3, 2013. This visit comes at a time when Africa is beginning to be seen by many as the new growth frontier. In the recent past, the continent has experienced rapid economic growth driven largely by a prolonged commodity boom, increased public spending, rising incomes and urbanization, and a growing middle class. Despite the global slowdown, Africa recorded an average growth rate of 5 percent in 2012. Today, six of the world’s 10 fastest growing economies are in Africa, with Ethiopia and Sierra Leone topping the list of African economies at 10.2 percent and 9.5 percent (for average annual percentage growth from 2008-2012), respectively, according to the United Nations Economic Commission for Africa Economic Report on Africa 2013. Moreover, the recent discovery of hydrocarbon resources has raised the profile of the continent on the world stage. It is, therefore, not a surprise that the emerging economic powers such as China, India, Russia, Brazil, Turkey and Indonesia and traditional powers are rethinking their strategies to deepen their cooperation with Africa. The Obama visit to Africa could be seen as an attempt to enhance U.S. bilateral ties with Africa amidst a changing diplomatic landscape. The resurgent Africa is steadily overcoming the yesteryears of hopelessness that had previously characterized the continent.
Obama has a lot to face while in Senegal, South Africa and Tanzania. The key issues in the U.S. policy towards Africa include supporting open and democratic governance; fostering economic growth and promoting of trade; fighting international terrorism, piracy and drug trade; and increasing access to quality healthcare and education. President Obama’s visit to Egypt in 2009 was an important milestone in rebuilding relationships between the West and the Muslim world following the U.S. interventions in Afghanistan and Iraq, which had led to anti-Americanism in the Arab and Muslim world. During his visit to Ghana in 2010, he articulated his policy on promoting democracy and building strong institutions in Africa. Now it remains to be seen how the U.S. will strike a balance between promoting democracy and fighting terrorism, and fostering economic development and trade.
Today, Africa’s leading trading partners are the European Union, China, the United States and India, in that order. Turkey, Brazil and South Korea have also significantly increased their trade volumes with Africa in recent times. China overtook the United States as Africa’s major trading partner in 2009. As a result, Beijing is seen as a major buyer of Africa’s natural resources and a supplier of capital goods for infrastructure development. India is investing considerably across Africa as well, especially in the agriculture, pharmaceuticals, hydrocarbon resources, information technology and telecommunications sectors. The strong presence of China and India calls for rethinking of the U.S. relationship with Africa in terms of investment and trade opportunities, which President Obama should take into account during his time in Africa.
The choice of the countries Obama is visiting this time has raised some eyebrows. For one, the choice of Tanzania comes on the heels of Chinese President Xi Jinping’s visit just three months ago, which may underscore the U.S. strategy to counter China’s advances in Africa. Tanzania’s strategic position in the continent and its abundant natural resources may also be major reasons for this choice. Of course the skipping of Kenya, the leading economy in East Africa and the birthplace of his father, raises more questions than answers. One issue that has complicated the president’s visit to Kenya is the ICC case facing the Kenyan leaders. This is despite the democratic election held in the country in March in which the Kenyan people expressed their choice of leadership freely. The U.S. government, however, states that the Obama administration will continue working closely with the Kenyan government despite this snub. It will be curious to watch how the two governments engage in the coming years.
As the U.S. pursues its policy on democratization and the fight against terrorism, it should also start rethinking its engagement with Africa to deepen economic relations. One of the key issues to address is the extension of the African Growth and Opportunity Act (AGOA), which is set to expire in September 2015. Through the AGOA initiative, 40 African countries have been able to increase their exports to the U.S. However, the full potential of the initiative has not been exploited. Of particular importance is the need to increase the range of products exported to the U.S. under AGOA in order to benefit African producers and manufacturers.
The enormous opportunities in Africa could be the foundation of mutual engagement between America and Africa especially in health and education, infrastructure development, agriculture and food security, and mutual benefit in the natural resource sector and the service industry. Since regional integration is already taking root in Africa, it is important that the U.S. engages regional economic blocs in trade negotiations to promote trade and commerce. The U.S. should also see emerging players in Africa as partners so that the interaction between Africa and the rest of the world leads to a win-win relationship. Moreover, the U.S. should seize development prospects in Africa to establish a new platform for enhancing relations with Africa.
President Obama’s Upcoming Africa Trip: Good Governance, Economic Development and Institutional Strengthening as High Priorities
Hakeem Olatunji Tijani, Research Fellow, Social and Governance Policy Research Department, NISER
As President Obama prepares for his upcoming visit to Senegal, South Africa and Tanzania, he should emphasize good governance, economic development and institutional strengthening as priorities for his discussions. There have been peaceful elections in these selected countries, but the policies and behaviors of many of their leaders have not added value to society. The capacity to get things done still resides in governments with little or no contribution from the private sector—this obstacle hinders the functioning of markets. Thus, institution building becomes the remedy. During his visit, the president should emphasize the need in Africa to have predictable government behavior, strong rule of law, poverty reduction programs targeting youth, public-private partnerships and a code of conduct in managing the affairs of these countries.
The president should use this trip to have bilateral discussions woven around the pillars of good governance and economic development, which would prevent African states from becoming failed states. But good governance and development cannot just occur. Strong institutions should happen first before good governance and development can follow. Some African states may become failed due to their inability to provide two vital responsibilities: provision of security for their citizens and economic opportunities that enhance their living standards. States become “disconnected” as a result of institutional collapse before they finally become failed. The collapse of institutions incapacitates African states from heralding good governance and economic development.
What fundamentally differentiates developed states from developing states (such as African ones) are strong institutions, as Tijani (2010) expatiates. The economic implications of weak institutions include the denial of factors of production to youths, a situation that has driven many young people to violence and heinous acts such as terrorism, drug trafficking, armed robbery, etc. The political implications are the creation of institutions that deny the African people a political voice and the creation of exploitative patron-client relations, which has made African people a chess pieces rather than the players.
The United States can support youth employment opportunities by having bilateral discussions on identifying successful poverty reduction programs (such as Songhai Farm Initiative in Rivers States, Nigeria and Songhai in Porto-Novo, Republic of Benin), concentrating on the structure of the programs, making the youths benefit directly and conducting evaluations to assess progress. Through these programs, youths become empowered, creative, innovative and gain a political voice; all conditions necessary for building the strong institutions that promote good governance and economic development.