The US Africa Business Forum: Taking stock after two years

PUBLISHED: Mon, 19 Sep 2016 18:45:44 GMT

Two years ago, government and business representatives from across Africa and the US gathered at the US-Africa Summit to discuss investment opportunities and potential partnerships. A key focus of the summit was attracting US investment into Africa’s energy, transport and IT infrastructure.

Progress hasn’t been linear – it never is. The value of US imports from Africa has shrunk by about a third as a result of weaker oil prices and increased domestic oil production in the US. But this should not be allowed to obscure much more positive underlying trends from Africa’s point of view. Non-petroleum exports to the US – particularly apparel and manufactured goods – continue to grow significantly, driving economic diversification, industrialisation and job creation. And in the past decade, Africa has also begun to close its infrastructure gap with the rest of the developing world, but massive new investment is still required.

President Obama’s Power Africa and Trade Africa initiatives have been instrumental in marshalling US investment and in reinforcing these positive trends. For example, in the Power Africa initiative, the US government’s initial $7bn commitment has leveraged nearly $43bn in commitments from over 120 public and private sector partner, and the initiative is on track to add 30000 MW to Africa’s power supply by 2030.

The Trade Africa partnership has made good progress in increasing US partnerships with firms in its initial area of focus, the East African Community. In the first year of the initiative, there was a 24% increase in exports of goods from the EAC to the US. A US-EAC Cooperation Agreement aims to further reduce red tape and unnecessary formalities at border crossings, to help EAC partners meet international food safety and quality standards, and to build capacity to meet global trade standards and regulations.

Looking continent-wide, the US government is working towards expanding trade in services and increasing its imports of African agricultural products. And both US and African firms are looking for ways to maximise the opportunities created by extension of the AGOA trade agreement. For instance, Ghana, Kenya, Nigeria and Uganda are working with US trade agencies to support local exporters to access US markets, including capacity development to comply with international standards for product development and packaging.

These initiatives are valuable right now and also make good sense in the longer term. They are helping to build relationships that will continue to pay off for the US and for Africa in the coming decades.

Despite soft commodity prices, Africa’s medium and longer-term growth trajectories remain strong. Looking ahead a year or two, Africa’s growth will be boosted by the continuing recovery in the US, and by the re-acceleration of the Chinese economy as it continues its transition towards consumption and services – an evolution that will continue to challenge some of Africa’s commodity exporters, but is already benefitting oil importers and Africa’s agro-processing, manufacturing and services sectors.

The IMF forecasts that while Africa’s average economic growth rate will remain subdued at around 1.6% in 2016, it will pick up to 3.3% next year. While commodity exporters will continue to grapple with prices well below recent peaks, the likely modest recovery in prices will make a welcome difference to current account balances and export prospects. And non-commodity countries, particularly in East Africa, will continue to perform well above the continental average.

Ethiopia, Kenya, Tanzania and Rwanda offer particularly attractive growth prospects. The IMF expects all three economies to expand by 6% to 7% in 2016 and 2017. All are in the process of improving their transport and energy infrastructure, and have introduced wide ranging reforms to improve the business environment. They benefit from robust domestic consumption, driven by the growing middle class. And their governments have actively pursued economic diversification, with initiatives to develop tourism, agriculture, services and manufacturing. East Africa’s markets are also increasingly integrated, lowering the costs of doing business and boosting trade.

Across the continent, the middle class continues to grow thanks to decades of steadily improving education and health. The numbers are startling. Standard Bank research on 12 of Africa’s larger economies finds that the lower-middle class category has grown by 132%, or 6.6 million households, over the past six years, and that it can be expected to grow by 100%, or another 11.6 million households, over the next 15 years. The middle class category has shown even stronger growth – an increase of 9 million households, or 150%, since 2000, and an expected further increase of 17.6 million households, or 151%, over the next 15 years. In most countries, growth rates for the lower middle and middle income segments together will outweigh growth of lower income households – indicating that trends for consumer buying power are moving steadily upwards. If you’re a US services or manufacturing firm, key economies to watch include South Africa, Nigeria, Kenya and Ghana.

A third reason for confidence in Africa’s long-term economic performance is the growing strength of democratic institutions. For instance, over the past year, the democratic resilience of the region’s two largest economies, Nigeria and South Africa, has been resoundingly confirmed. In both countries, incumbent parties suffered serious losses in free and fair elections and a peaceful and orderly shift in the balance of power was achieved. The maturing of these two major democracies is a strong positive for the quality of governance in the region as whole.

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