With the success of this year’s Global Entrepreneurship Summit in Nairobi, a lot of questions are being raised about how the US has to date engaged with sub-Saharan Africa and the role of entrepreneurship in US-Africa engagement.
US engagement in sub-Saharan Africa lags behind that of other countries – in particular that of China. While there is still a sizeable amount of funding coming to the continent from the US, majority of it is taking the form of aid rather than investment. In 2015 alone, more than a quarter of the countries in sub-Saharan Africa are receiving more than US$150m each as aid (with Nigeria having the lion’s share of $720m), but China dominates the field when we look at investment as opposed to aid. In 2014, the US government estimated their corporate investments on the whole continent to be $14bn. This figure is significantly dwarfed by the $75bn China invested in the continent in the same year in the form of corporate investments.
If taking into account aid in addition to investment, why is the US still not emerging as the strongest player in the continent? The answer is simply one of perception – the US government is focusing on investments and providing aid for initiatives that might not have as much visibility as those by other partners. China is primarily engaging in large infrastructure projects, Middle East funders such as the UAE’s Abu Dhabi Fund for Development (ADFD) is mostly focusing on infrastructure, health, agriculture and education; while the US is focusing on sectors that, while greatly important to the region, do not necessarily have the most visibility – peace building, security and advocacy around building strong business climates through rule of law and transparent business conduct – with the underlying aim of strengthening/mobilising the private sector. Greatly important – yes; highly visible – not so much.
So what are the main complaints from sub-Saharan Africa’s perspective in how the US is engaging with the region? Firstly, governments and business representatives feel that the US is still working on an old paradigm where the African countries held the proverbial begging bowl and the US was a merciful and benevolent giver. With Africa rising, Africans are demanding more to be seen as equals with businesses worthy of investment – the rhetoric on the continent is “more investment, more investment”. Part of this old paradigm also includes the US working mostly through governments and larger NGOs.
Secondly, the US is still seen to be taking a one-size-fits-all approach to the continent, thinking of Africa as a homogenous block rather than as a collection of countries with unique characteristics. Given relatively lower priority of commercial matters to the US in Africa as compared to that of China – the US only has commercial attaches in eight countries on the continent as compared to China’s in 54 African countries. With such limited capacity it must be difficult to customise the approach for the different countries. Even compounding the matter further is the fact that in certain countries devolution has not been taken into account in the US-Africa strategy. How does the US plan to work with the 47 Kenyan counties or the 36 federal states in Nigeria?
Finally, the US is still not considered as flexible and ready to adapt to changing situations as other players. Middle Eastern countries are more willing to offer direct budgetary support to governments to allocate at their own discretion. China’s approach is very opportunity-driven and they are agnostic on working with the government, private sector, etc. European governments sometimes have higher discretion on how they allocate their donor funding collected from tax revenues. The US however is more constrained in terms of how they use their taxpayer funding and also in terms of having rigid systems and processes that increase bureaucracy in working with them.
Given these challenges, is there money being left on the table? The surprising response, is “not really.” Many other partners are already engaging and increasingly significant investments are being made by African companies in their countries. African countries now have more bargaining power than they did in the past given increasing attractiveness of investing in them. In 2011, Africa ranked 8th out of 10 in the Ernst & Young global surveys on attractiveness in investing in the region compared to other regions in the world. In 2014, Africa ranked second – with North America ranking first. This increasing interest in the region and higher bargaining power is giving Africans the ability to choose partners based on mutual interest, understanding, respect and ease of partnering. It is not a coincidence that China’s presence on the continent is increasing – despite various challenges that are highlighted in different countries in working with China. Sub-Saharan Africa governments are sometimes willing to partner with China given the ease and speed of actualising agreements (less red-tape,) and the perception that China views them as equals rather than subordinates. Intra-African investment is also on the rise. As of 2014, intra-African investment is second only to Western Europe as a source for FDI on the continent.
That being said, are the US and sub-Saharan Africa better off engaging independently with other partners rather than with each other? Not necessarily. There is actually a bit to be lost on each side by not partnering more. Top on the agenda of US-Africa engagement is a focus on governance and strengthening business climates that make it easier for the private sector to work efficiently. This is a key area of support that is still needed in the majority of sub-Saharan Africa countries. In addition to that, the US as a partner is known to insist on high levels of transparency and accountability, which in the long-run is extremely important in making sure funds are beings spent as expected. The US is also very inflexible on issues such as labour laws, fair worker compensation and treatment, etc. This is still much needed in a region with growing sectors such as mining and oil extraction that can easily lend themselves to business malpractice.
The loss of not partnering with sub-Saharan Africa is also great on the US’s side. The US misses out on an opportunity to partner with a region that is no longer referred to as “the next frontier” but increasingly being seen as a very pivotal frontier. This is especially true given economic growth rates in the region that greatly surpass those of most regions in the world that are now beginning to stagnate or in some cases decline. The good news though, is that the US is also aware of the risks of losing some of its relevance in the region if they fail to build certain partnerships. Companies like GE, Google and Microsoft are doing business in Africa, building a strong footprint and contributing to the overall economic growth. GE Healthcare recently won a large Kenyan government contract to scale up radiology infrastructure in 98 hospitals across Kenya’s 47 counties. A key selling point for GE was promising technology transfer, education and capacity building (including healthcare worker training) as additions to the package.
The Global Entrepreneurship Summit and commitments made to support entrepreneurship in sub-Saharan Africa further signify a shift in how the US is thinking about its partnership with region. Some examples include (i) OPIC (an independent US government agency) contributing $200m for Equity Bank to lend $450m to SMEs over the next five years with a focus on women and youth, (ii) USAID providing a $25m loan portfolio guarantee to Deutsche Bank’s newly launched $50m Essential Capital Consortium (ECC) Fund, a debt fund focused on lending to social enterprises and (iii) The US Department of State Global Innovation through Science and Technology (GIST) initiative planning to train, mentor and connect more than 10,000 young African science and technology entrepreneurs by mid-2016.
The question is no longer, how does the US engage, but rather how should the US engage?
Madjiguene Sock is Dalberg’s Regional Director for Africa at Dalberg Global Development Advisors – a leading global strategy consulting firm focusing on development issues. Naoko Koyama-Blanc is an Associate Partner in Dalberg’s Nairobi Office. Ciku Kimeria is the Africa Regional Communication Manager at Dalberg.