Obama’s Push for Africa Unheeded by U.S. Companies
http://www.bloomberg.com/news/2013-06-28/obama-s-push-for-africa-unheeded-by-u-s-companies.html
A year after urging U.S. companies to deepen their involvement in an
African economic renaissance, President Barack Obama doesn’t have much to
show for the effort.
June 27 (Bloomberg) -- U.S. President Barack Obama speaks about Africa's
growth potential, the Supreme Court's rulings on same-sex marriage and
voting rights, and U.S. relations with Russia and China as it pursues
leaker Edward Snowden.
U.S. companies still lag behind European and Chinese enterprises on a
continent that is home to six of the world’s 10 fastest-growing economies.
Apart from oil companies such as Chevron Corp. (CVX) and retailers such as
Wal-Mart Stores Inc. (WMT) and YUM! Brands Inc. (YUM), U.S. businesses have
been reluctant to brave African security risks and trade headaches.
African markets are “of increasing interest,” said David Cote, chief
executive officer of Honeywell International Inc (HON)., which has offices
in South Africa, Angola and Nigeria. “But corruption is the thing I always
worry about the most.”
Cote said it’s not just a theoretical issue for Honeywell executives.
“We’ve been asked,” he said in an interview. “This is not hearsay.”
Nigeria, Africa’s second-biggest market, ranked 139th in Transparency
International’s annual corruption perceptions scorecard, putting it near
the bottom of the 176 countries measured. South Africa, the No. 1 African
economy, ranked 69th.
Obama, who began a three-nation African trip on June 26, aims to invigorate
the U.S. effort with a July 1 roundtable in Tanzania with business leaders
and a speech to U.S. and African chief executives. He’s expected to unveil
a power-generation initiative, building on Symbion Power’s earlier success
with an electric power plant in Tanzania.
Showing Potential
The visit follows Obama’s June 2012 approval of a directive setting forth a
four-pronged approach to sub-Saharan Africa, including encouraging U.S.
companies to trade and invest on a continent the White House said was
poised to be “the world’s next major economic success story.”
To underscore U.S. interest in deeper trade ties with the more than 1
billion Africans, the president has brought along top officials, including
U.S. Trade Representative Michael Froman, and Valerie Jarrett, a senior
adviser.
Speaking to reporters aboard Air Force One today, the president said the
U.S. isn’t engaged in a “zero sum” contest for African markets. And he said
American CEOs have hesitated to invest in Africa for fear of political
instability.
“One of the main things that we want American companies to see is that
Africa is ready to do business and that there’s huge potential there,”
Obama said.
Showing Life
Long an economic backwater, Africa in recent years has flashed signs of
potential. The International Monetary Fund cites the sub-Saharan region’s
“robust” growth and says output will rise by 5.4 percent this year and 5.7
percent next year.
“If Africa does take off economically, you’re going to have a rapidly
growing middle class and market for U.S. goods,” said Ben Rhodes, deputy
national security adviser. “What we hear from our businesses is that they
want to get in the game.”
A fragmented U.S. government approach may be holding them back.
At least 10 government agencies have a hand in setting trade and investment
policy, according to a March 7 report by Senator Chris Coons, a Delaware
Democrat and chairman of the Senate Foreign Relations subcommittee on
Africa. And only six foreign commercial service officers are stationed in
sub-Saharan Africa, overseeing an area that stretches for more than 4,000
miles north to south and is home to about 900 million people.
Congressional Hurdle
The government’s Overseas Private Investment Corp., which provides
financing and political risk insurance for U.S. companies’ foreign
ventures, is ill-positioned for multiyear projects since it depends upon
annual congressional appropriations, unlike British, Dutch or Chinese
financing agencies, says Todd Moss, who directs the Emerging Africa Project
for the Center for Global Development in Washington.
Coons, along with Richard Durbin of Illinois, the second-ranking Senate
Democrat, and Republican Senator John Boozman of Arkansas, has introduced
legislation designed to force the White House to better manage its
promotion of trade with Africa.
“The U.S.’s continued failure to develop a coherent strategy to compete in
Africa is hurting both American business interests, American workers and
our political influence in the region,” the lawmakers said in a statement.
The legislation would create a White House post of Africa strategy
coordinator, add diplomatic jobs on the continent and allow the U.S.
Export-Import Bank to make larger loans to compete with Chinese government
financing. The bill sets a goal of increasing U.S. exports to Africa in
real terms by 200 percent in 10 years.
Not Serious
“I don’t think this administration is very serious about getting engaged on
this,” says Moss. “The administration has no economic strategy.”
U.S. businesses considering African markets confront obstacles that extend
beyond their own government. African commerce remains bedeviled by sub-par
roads, ports and rail lines. In many countries, adequate electric power
supplies remain a distant dream: Only 14 percent of Tanzanians have access
to electricity, Froman said in a July 2012 speech.
Moving goods across African borders can exhaust the most patient trader. A
coffee exporter in the three-nation East African Community requires 29 days
to fill out paperwork, transport the product to a port, clear customs and
load it aboard a vessel -- twice as long as in Brazil.
54 Markets
Rather than an integrated market like Europe or the U.S., the African
continent is divided into 54 separate units, only some of which are large
enough to warrant a multinational corporation’s attention. Senegal, Obama’s
first stop, has an economy roughly half the size of Vermont’s.
Images of famine and warfare have left many U.S. companies slow to
appreciate the political changes that have transformed much of Africa,
analysts said. In the past two years, countries including Nigeria, Ghana
and Kenya have completed peaceful transitions of power.
“It’s actually less risky than most investors think,” Larry Seruma, chief
investment officer of Nile Capital Management, whose Pan Africa Fund has
gained 22 percent over the past year, told Bloomberg Radio on June 17.
“Political stability is a big story about why this time around is
different.”
China Surges
Obama’s trip to Africa comes with China having surpassed the U.S. as a
trading partner. In 2011, Chinese two-way trade with the continent was $160
billion, according to the state-run Xinhua news service. The U.S. total was
$95 billion in 2011, while the European Union did $286 billion worth of
business with African companies.
Chinese foreign direct investment in Africa also has surged in recent
years, though it’s difficult to make a comparison with U.S. figures because
much Chinese overseas spending shows up as investment in Hong Kong or
various tax havens.
After lagging behind the U.S., China since 2005 has been more generous.
Last year, both countries put a bit more than $3 billion to work on African
projects, according to Xinhua and the Congressional Research Service.
Coupled with the Chinese government’s lavish provision of development
loans, the trade turnaround has sparked concern in Congress that the U.S.
is losing in a battle for African influence.
“China is all over Africa -- I mean, all over,” Secretary of State John
Kerry said during his Jan. 24 confirmation hearing. “And there’re some
places where we’re not in the game, folks.”
Overblown Concern
Concern over China dominating Africa at the expense of the U.S. are
overstated, many analysts say. China tends to provide state financing for
giant infrastructure projects -- roads, airports and bridges -- which
companies from the Asian country often construct with imported Chinese
labor.
The U.S. doesn’t offer that type of financing, and American companies
specialize in other areas, from deepwater oil fields off West Africa to the
consumer market in South Africa, where Wal-Mart (WMT) has a foothold.
Chinese investment in infrastructure -- smoothing the trade barriers that
today discourage some companies from getting involved in Africa -- will
ultimately benefit U.S. companies, too, says Jennifer Cooke, director of
the Africa Program for the Center for Strategic and International Studies
in Washington.
The continent is big enough for both powers, and direct commercial
competition between U.S. and Chinese firms is rare, according to Moss, who
was the No. 2 official in the State Department’s Bureau of African Affairs
in 2007-08.
“This notion that we need to counter moves China is making is exactly the
wrong way to think about our engagement in sub-Saharan Africa,” he said.
“In a mercantilist, business-to-business sense, there’s really very little
direct competition with China.”
In 2007, when the state-controlled Industrial & Commercial Bank of China
Ltd. spent $5.6 billion for 20 percent of Africa’s largest bank, South
Africa’s Standard Bank, an American investment bank -- Goldman Sachs Group
Inc. (GS) -- was an adviser in the deal.
Received on Fri Jun 28 2013 - 20:27:39 EDT