Priorities of engagement — US Africa Leaders’ Summit
For several years, Africa has tried to attain economic prosperity, thereby reducing poverty, and providing jobs for its budding population, but this has been disrupted by various socioeconomic and environmental issues According to the AfDB, about thirty million more Africans fell into extreme poverty (living on less than US$1.90 a day) when COVID-19 broke out in 2020. Before the pandemic struck, over 445 million people — equivalent to 34% of Africa’s population — lived below the poverty line. Even then, this figure was almost nine times the average for the rest of the world. This has put a strain on the African economy and, in many cases, reversed the socioeconomic gains of countries in the region. Moreover, even before the COVID-induced crisis, rapidly rising public debt (projected to stay elevated at 58.6% of GDP in 2022), poor infrastructure, low job growth, and high inequality persisted — complicating plans for economic revival.
The World Bank’s macroeconomic outlook on economic growth in Sub-Saharan Africa (SSA) is set to decelerate from 4.1% in 2021 to 3.3% in 2022, mainly because of a slowdown in global growth, including flagging demand from China for commodities produced in Africa. At the same time, the war in Ukraine and the global surge in inflation have ripped open the scars of the pandemic in African economies — putting historic pressure on food, fuel, and fertilizer prices.
With all these challenges, African leaders need to rethink growth and development beyond exploration and exportation of natural resources but Industrial and Trade policy. Africa cannot achieve growth independently and would need a global superpower with the same shared values for economic growth and development.
One critical partner for this is the United States. Although, the US influence in Africa has dwindled over the years with rising interest from China, Russia, and Turkey. This could be because of the narrow focus on humanitarian needs, which overlooks how much Africa has to offer the U.S. in terms of new markets, growth opportunities and geopolitical alliances (US Secretary of State recently mentioned this at his August visit to Africa on how the United States has sent more than $6.6 billion in humanitarian and food assistance to Africa in 2022). But with the recent steps taken to recalibrate the approach to engage Africa through the US Africa Leaders' Summit coming up in December, it is critical for both sides to work towards shared prosperity in these priority areas.
Industrial Policy: Before any area of discussion, it is important to understand what would further develop Africa via trade (either intra-trade or inter-trade) — Industrial policy — which is the most critical area of all economic policies because it is the only one that can bring integration across the many disparate sets of economic policies (energy policy, land policy, transport policy, digital policy, education policy, and many others) that governments have. It is also the only economic policy that deliberately targets the restructuring of the entire economy toward inclusive growth.
According to an economic development specialist, Jonathan Said, industrial policy can bring about proper, constructive dialogue and collaboration with those that develop a country’s productive capacity — the private sector — on what holds them back from expanding and investing. Secondly, such feedback is channeled into the mammoth and multi-headed organization that is the government, giving government leaders the ability to identify practical solutions to specific bottlenecks and to follow up on the solutions. So, if an industry that has the potential to export value-added products to other African countries and the international market is facing market access bottlenecks, electricity bottlenecks, a skills gap and poor internet connectivity, industrial policy plays a ‘clearing house’ role to signal to trade facilitation stakeholders and disparate groups that they need to respond and do their best to address the bottlenecks. And it can provide internal accountability and enforcement, using the executive powers of the Head of State to ensure follow-up by those stakeholders.
The US has an advantage in driving this as it did the world (Europe, Taiwan, South Korea) through investment and technical support. This area is quite critical, and to drive political will of Heads of States, US commitments and funding should be tied to industrial trade policies and trade facilitation via the AfCFTA. The US Government can provide the technical support to drive this through its US Missions across Africa.
Intra and inter-trade: AGOA has been beneficial to the growth of small businesses and enterprises in Africa. While trade policy in Africa over the past three decades has been good at opening markets and reducing cross-border barriers, it has not succeeded in addressing the challenges of small economies and market fragmentation, as mentioned by H. E. Mene at a meeting with the Overseas Development Institute.
The duty-free access afforded by AGOA is important for increasing the competitiveness of the small businesses looking to expand their business beyond domestic shores. For example, the duty-free access has allowed sub-Saharan Africa to grow the textile and apparel sector, which is a large-scale employer of low-skilled labor. For AGOA to realize growth, the US government should extend the agreement by a minimum of 15 years to boost confidence and investments.
On bilateral agreements with African countries, the US should avoid individual trade agreements with African nations as it could undermine efforts to create a regional economic bloc through the African Continental Free Trade Area (AfCFTA). Instead, such engagements should be through the AfCFTA alongside the Heads of States to ensure trade and development works efficiently.
Other areas critical in driving the shared prosperity between US and Africa include:
Debt Relief: Currently, external debts amount to up to 80% of the Gross National Income for several African countries. According to data from 2019, even countries currently considered as being at minimal risk of debt unsustainability have external debts as high as 41% of their national income and spend significant amounts of their budgets on servicing this. As a result, African countries began issuing bonds in international credit markets and procuring new debts. As illustrated in the figure below, African debt levels increased by nearly 140% to USD 841 billion over a 10-year period (2009–2019).
In August, Secretary Blinken mentioned in South Africa that the US is rallying other countries and international institutions to step up on key challenges, like debt relief. The US, with South Africa and other members of the G20, helped develop a Common Framework for Debt Relief, bringing in China and other creditors for the very first time. For Zambia, this collective commitment is poised to unlock $1.4 billion in an IMF program designed to help the country return to a stable economic path and foster more resilient, inclusive growth for the Zambian people.
This is a welcome development, but additionally, the US would need to support the continent by engaging credit agencies to curtail the issue of downgrades in the period of a pandemic or global crisis to limit further damage to macroeconomic conditions. African countries have increasingly received several downgrades to their sovereign credit ratings and outlooks since the onset of the COVID-19 pandemic. This aggravates the economic situation and results in investors withdrawing their capital or raising the cost of borrowing.
Ethiopia, Pakistan, Cameroon, Senegal, and Côte d’Ivoire were under review for downgrade by the Moody’s credit rating agency in May and June 2020 after requesting bilateral debt service suspension from G20 creditors. Fears around the consequences of further downgrades may even discourage African countries from pushing for the very debt restructuring that would ensure fiscal capabilities against COVID-19.
In ensuring debt is used efficiently with the aim of returns and to curtail the habit of some African nations attaining closed debts from Sovereign entities, the US government and relevant parties should encourage African Heads of State on the need to incorporate appropriate legal frameworks that will inform citizens so that they can be equipped to monitor the performance of loans and hold leaders accountable.
Security: Terrorism and violent extremism were arguably Africa’s greatest security threats in 2021. Local groups with international terror links are embedded in East, West, and Southern Africa. Their activities foment local conflicts and enable organized crime rackets — further destabilizing fragile political landscapes.
It is then critical to address these issues within the local context which the US Government has indicated interest to support. This can be done through cultivating relationships between community leaders, government officials, and security forces, which are vital to defusing tensions before they erupt into violence; and building resilience to the destabilizing impacts of climate change, like more frequent flooding as experienced in Nigeria, and severe droughts. In such discussions on security, human rights should be a major proponent in tackling the marginalization that often drives people to criminal or extremist groups.
Investment in climate mitigation and adaptation: Climate change adaptation aims to reduce the risks or vulnerabilities posed by climate change and to increase climate resilience. One way is to invest in climate-resilient infrastructure and climate-proof food production to withstand or adapt to climate change’s detrimental impacts.
But first, we need to take a step back and redefine climate change equity for the global south. This entails Africa determining its pathways to climate change and mitigation such as leveraging its current fossil resources to attain growth with plans to transition, determining the investments needed to impacted sectors — agriculture, land use, resilient infrastructure (especially to cases of flooding which impacts solar farms and distribution networks), and climate migration.
This is to ensure the West view on what is required, and investment figures thrown in the air are not conflated with the realities on the Continent. The US Government should also support African Leaders to define equity as timelines for the energy transition and the required investments needed for adaptation and mitigation pushed by the West should not be contorted with the global south as the economies and resources are different. This should then be supported with long-term finance and involvement of the US and African private sectors.
CRM supply chains and beneficiation: Critical Raw Materials (CRM) provide the building blocks for many modern technologies, especially clean energy technologies like batteries, electric vehicles, wind turbines, and solar panels. These minerals, which are essential to US national security — such as rare earth elements, lithium, and cobalt — can be found in various parts of Africa.
As the world transits to a clean energy economy, global demand for these critical minerals is set to skyrocket by 400–600 percent over the next several decades, and for minerals such as lithium and graphite used in electric vehicle (EV) batteries, demand will increase by even more — as much as 4,000 percent. The U.S. is increasingly dependent on foreign sources for many processed versions of these minerals. Globally, China controls most of the market for processing and refining cobalt, lithium, rare earths, and other critical minerals.
This engagement provides many opportunities for the US Government to work with democratic countries in Africa by accessing these resources and, in return, build local capacity, invest through the US private sector in the beneficiation of minerals, and conduct R&D with local institutions to attain technological innovations.
In summary, the most vital instrument for long-term growth and development in Africa is the development of industrial and trade policies. It is a major proponent for resilient agriculture, infrastructure, security/defusing conflict, and the processing of raw goods to finished goods for trade. This should be a key priority for the December Summit.
