Is the United States missing out on Africa’s opportunities?

Africa’s growth story and opportunities are increasingly catching the attention of multinational companies and investors around the world. The Economist, which referred to Africa as the ‘Hopeless Continent’ in 2000, released a special report in its March 2013 issue where it called Africa the ‘Hopeful Continent’. This shift in thinking about Africa is not unique to The Economist.

US supermarket chain Walmart has invested in South African retailer Massmart.

US supermarket chain Walmart has invested in South African retailer Massmart.

“These days, Africa is variously referred to in positive terms such as emerging, rising and hopeful,” stated Mwangi Kimenyi, senior fellow and director of the Brookings Institution’s Africa Growth Initiative, in a recent report. “This positive view of Africa is justified – sub-Saharan Africa is the host of some of the fastest growing economies in the world. This growth is not just due to rising commodity prices but is also driven by a more vibrant private sector supported by an improved business climate.”

He added that dramatic improvements in services, governance and economic management, and the technology revolution, mostly in mobile technologies, have also fuelled a rapidly growing middle class with increasing spending power.

“While sub-Saharan Africa still faces many development challenges, it is a far cry from the one described by The Economist in 2000,” continued Kimenyi. “Africa is indeed on the path to claiming the 21st century.”

In his essay, ‘Why Africa matters to the United States’, Kimenyi highlighted some of the new players that have began to invest and engage in Africa’s opportunities – such as the BRIC countries (China, India, Brazil and Russia) as well as countries like Turkey and Iran. “The increased interest in Africa by these new actors has been due to the realisation that Africa has much to offer.”

However, the Unites States has been slow to seize the opportunities on the continent, according to Kimenyi. In 2012, research by Brookings’ Africa Growth Initiative stated that US investment in sub-Saharan Africa is less than 1% of its foreign direct investment (FDI) worldwide. However, there has been a steady increase in investment and trade over the last decade. Between 2001 and 2011, total exports by the US to the sub-Saharan region tripled, and the report added that between 2010 and 2011 alone, there was a 20% increase.

“While the American private sector has begun to take advantage of some of these opportunities [in Africa], the scope of engagement by American businesses is still small in scale. Likewise, the US government’s engagement has not changed much,” explained Kimenyi. “But Africa matters to the United States, a reality that will only grow more important as the continent’s economies and governance structures continue to transform.”

“While it is indeed true that Africa benefits from American engagement, it is also true that the US benefits from African engagement,” he continued.

The need to develop the US-Africa commercial relationship

According to Witney Schneidman, a non-resident fellow for the Africa Growth Initiative, the fact that the African market is not on the radar screen of the American business community means that the US is “effectively ceding the African marketplace to companies from China, India, Brazil, Russia, Turkey, the European Union and elsewhere”.

While there have been recent investments by American companies such as Walmart, Microsoft, General Electric, Symbion and Proctor & Gamble, this overall FDI figure remains low – with half of this being in the extractive industries.

“At the same time, US exports to Africa were just over US$22 billion in 2012, or about 2% of US exports worldwide,” stated Schneidman. “While the volume may be small, these exports support more than 100,000 jobs in the United States.”

Schneidman added that the US should look at how to accelerate this trade and investment with Africa so that more American workers and companies can benefit.

“The US’s lack of attention to Africa’s commercial opportunity comes at a time when the region is poised for an economic takeoff,” stated Schneidman. However, while the US may not be a big player, other economic powerhouses – especially China – have already started tapping into the various opportunities and potential that exists in Africa today.

According to the IMF, six of the world’s fastest growing economies are in sub-Saharan Africa.

“Moreover, according to the McKinsey Global Institute, by 2020 Africa’s consumers – in areas such as financial services, tourism, telecommunications and retail – are projected to contribute more than five times as much revenue to the region’s economic growth as the natural resource sector.”

Schneidman also cited Africa’s improvements in governance as a key element to the continent’s economic growth.

“The increased frequency of elections has led to an expansion of democracy across the continent,” she explained. “In addition, the emergence of civil society, social media and, in many countries, a robust press has contributed to greater accountability of government officials at the national, state and local levels.”