Forgotten Continent Now Remembered

All of a sudden the U.S. is interested in African economic development. During her recent tour of Africa to address security interests in light of the "Arab Spring" and promote economic development, U.S. Secretary of State Hillary Rodham Clinton said the following: "We want a relationship of partnership not patronage, of sustainability, not quick fixes. We want to establish a strong foundation to attract new investment, open new businesses ... create more paychecks, and do so within the context of a positive ethic of corporate responsibility." My goodness, where has the U.S. been for the past fifty years! The U.S. is not turning its attention to Africa out of altruism. The U.S. has largely remained on the sidelines for the past ten years or so and watched the recent successes of India and, especially, China in partnering with African aid organizations and government to support economic development in Africa while gaining access to strategic, abundant mineral resources. The U.S. wants its piece of the African pie and is not beyond criticizing Chinese interests as based on patronage not partnership to promote U.S. investment in Africa.

China has long targeted Africa under its "Going Out" strategy launched in 1998. I have previously blogged about my concerns with respect to China's true motive for its extensive involvement with African countries and whether it is motivated by the desire to  help develop the infrastructure essential to accommodate economic advances and enlarge Africa's role as a contributing member of the the global society. The African Growth and Opportunity Act (AGOA) has been the cornerstone of U.S. investment on the continent for more than ten years. But the vast majority of goods imported duty free are textile and oil products. African producers want to diversify those exports and say the U.S. government can do more to help.

In a meeting in Zambia, Chungu Mwila, the director for private sector development at the Common Market for Eastern and Southern Africa, says the trade preferences known as AGOA would be more valuable with more direct U.S. investment. “If American companies were to invest in Africa and boost our production capacities, then, in our view, AGOA would become more meaningful,” said Mwila. The Obama administration agrees and is asking Congress to extend AGOA trade preferences for another ten years. U.S. Assistant Secretary of State for African Affairs Johnnie Carson says there should be greater tax incentives for U.S. earnings from AGOA investments. "We recommend that the U.S. government support an effort to eliminate the U.S. tax on repatriated revenues from American companies that invest in factories in Africa that produce AGOA-eligible products.”

This is quite a request. Corporate America has recently criticized the repatriation tax on foreign profits as stifling U.S. business investment in the United States. Their attitude and request to Congress can be summed up as saying "Let us repatriate tax-free and you'll see greater investment in the U.S." From an ethical perspective we must look at the fairness issue.  If such a request is approved for American companies that invest in factories in Africa that produce AGOA-eligible products shouldn't it be allowed for at least some "strategic" investments if not all foreign investments of U.S. businesses?

Secretary Clinton was the first secretary of state to visit Zambia since Henry Kissinger came in 1976 as part of her recent "magical mystery tour" of Africa. Perhaps not coincidentally, for the first time since 1989 Zambia's economic growth reached the 6%-7% mark (in 2007) needed to reduce poverty significantly. Copper output has increased steadily since 2004, due to higher copper prices and the opening of new mines. GDP is up helped by a strong maize harvest and agricultural exports. Cooperation continues with international bodies on programs to reduce poverty, including new lending arrangements with the International Monetary Fund.

The African Development Bank Group Annual Report for 2010 points to the recent economic growth in Africa. "Real GDP growth rose from 3.1 percent in 2009 at the height of the financial crisis, to a level of 4.9 percent in 2010. It is projected to fall to 3.7 percent in 2011 as a result of the emerging sociopolitical unrest in some North African countries, before recovering to 5.8 percent in 2012. The observed GDP growth in 2010 has been driven by higher domestic demand, stronger export revenues, and increased inflows of foreign direct investment, remittances, and aid. The growth performance is most pronounced in resource rich countries that can benefit from the revival in commodity demand, oil and non-oil commodity prices, and trade.

The U.S. investment and economic role in Africa should emphasize African leadership and ownership of the development process while, at the same time, calling for a new partnership based on shared responsibility and mutual interest.  

Blog by Steven Mintz, aka Ethics Sage, June 24, 2011

Cartoon reproduced with permission