Africa: Trade Issue Brief, 12/16/'95

Africa: Trade Issue Brief, 1
Date Distributed (ymd): 951216

APIC Background Paper 004 (November 1995)

The U.S. And Africa's Trade: Prospects for Partnership by Robert Browne

Robert Browne is currently an Adjunct Fellow at TransAfrica Forum's Policy Institute. He was formerly the U.S. Executive Director at the African Development Fund in Abidjan, C"te d'Ivoire.

Note: Copies of the typeset version of this background paper, including additional tables and graphs, are available at $2 each, $1.60 each for 20 or more, from Africa Policy Information Center, 110 Maryland Ave. NE #509, Washington, DC 20002. Add 15% for postage and handling, and include your check, money order, or institutional purchase order.

The U.S. Stake in African Economic Progress

Africa is a paradox. Largest among the continents in area, second largest in population, and arguably the richest of all in terms of natural resources, its people are among the poorest in the world. Africa's people are hard-working and intelligent, and the continent can boast of having produced great civilizations long before today's developed countries came into existence. But the vast gap between contemporary Africa's level of economic development and that of virtually every other area of the world is, in fact, growing.

In today's world, stability is not possible in the face of massive international economic and social disparities. Isolationism is not a viable option, even for the U.S. Each new advance in telecommunications, each new desecration of the global environment, each new strain of infectious virus, each new advance in fissionable or biological weaponry, each corporate decision to relocate a plant overseas, shrinks the global community and confirms the interrelatedness of all peoples. Clearly, in today's world, to be one's own keeper one must be one's neighbor's keeper as well.

If the vast economic disparities between the U.S. and Africa place the U.S. at risk, then it must be a matter of U.S. policy to strive to shrink that gap. For half a century, "foreign aid"(1) has been the principal weapon for attacking the vast disparities between the developed and the least developed countries. While the debate over the quality and quantity of aid will continue, and the need for aid remains great, the reality is that it is fast diminishing.

The precipitous decline in Africa's economic performance beginning in the late 1970s led the donor community, directly and via its international funding agencies such as the World Bank and the IMF, to exert great pressure on African countries to restructure their economies so as to render them more efficient and more market-oriented. A major objective of these "structural adjustment"(2) programs was to prod the African countries to revamp their economies in ways which would make them more viable and more attractive to foreign traders and investors. After a decade of experimentation, these programs have shown only mixed results in economic development terms. But in many cases, they have led to new prospects for using trade as a means for transforming African economies. An expanded U.S.-Africa trade relationship deserves high priority on country agendas on both sides of the Atlantic.

U.S.- Africa Trade Relationships

The African continent is a more significant trading partner for the U.S. than most people realize, and potentially even more significant. Both the reality and the potential warrant much greater attention from policy-makers and the public alike. The strategic significance of African oil, for example, should imply much more focused concern with the long-term future of such countries as Nigeria, Angola and Algeria, each confronting very different but intense political and societal crises. The medium-term potential to expand the share of exports to Africa supplied by the U.S. is significant. The long-term potential--if the U.S. aids Africa in expanding and diversifying its exports--is even greater.

The magnitude of U.S.-Africa trade ($23.4 billion in 1994) comes to almost exactly two per cent of overall U.S. foreign trade of $1.2 trillion.(3) U.S. exports to Africa come to almost $9.2 billion. The U.S. imports some $14.3 billion from Africa, creating a trade deficit with the continent of about $5.1 billion.

The imports, moreover, are of strategic importance. Two-thirds of U.S. imports from Sub-Saharan Africa are accounted for by a single commodity: petroleum, comprising 20 per cent of total U.S. crude oil imports in 1994. This is mainly the sweet Nigerian crude oil ($4.4 billion), with sizeable amounts also coming from Angola, Gabon and Congo. Oil from west Africa is particularly favored by American users because of its high quality, but also because its supply has generally been considered to be more stable by comparison with that from the Middle East.

Of equal or greater strategic importance are several minerals for which Africa constitutes a major, if not the major Western source. In this group are such items as chromium, cobalt, vanadium and manganese, used in making specialized steel products. Africa supplies the U.S. with 47, 43, 35 and 25 per cent, respectively, of its imports of these commodities.

On the export side, U.S. sales to Africa have been in the $8 to 10 billion range for the last four years. The bulk of these sales are of equipment and machinery. Sales to Sub-Saharan Africa, for example, in total some $4.4 billion, included $289 million in U.S. aircraft and aircraft parts, $245 million of oil and gas field equipment, almost $200 million in construction machinery, and over $100 million each of computers, motor vehicles, telecommunications and farm machinery. The other major component was food --- principally wheat ($250 million) and rice ($107 million). In 1994, the $2.2 billion of U.S. exports to South Africa alone made it a larger market for the U.S. than all the countries of Eastern Europe combined (see table below).

While the U.S. runs a trade deficit with Africa, most European countries run a trade surplus there. There is, therefore, ample opportunity for the U.S. to increase its exports to Africa, especially if these exports are balanced by increases in imports from Africa as well, so that Africans can earn the dollars to pay for U.S. goods and services.

Africa's capacity to expand imports on a sustainable basis, however, is vulnerable not only to the multiple weaknesses of internal economic infrastructure and management, but also to its continued dependence on exports of primary commodities. Countries exporting oil have advantages that those exporting agricultural products such as coffee or sisal do not have. But oil producers too can easily be battered by wide price swings. Even South Africa is highly vulnerable to price shifts in gold and other minerals.

The catch-22 for primary commodity producers in the world market is that if everyone produces more, the price may go down, as consumers are oversupplied with cocoa, for example, or manufacturers with raw materials. The only secure route to better trade performance consists in being able to export more highly processed products with greater value added inside the country. The international trading system has historically not helped African countries to make that transition. Current changes may impose even greater difficulties.

(continued in part 2)

Notes for part 1:
1. "Foreign aid," or "official development assistance" (ODA), is formally defined by the Organization of Economic Co-operation and Development (OECD) as financial flows that (1) "are administered with the promotion of the economic development and welfare of the recipient countries as the main objective" and (2) "are concessional in character," with a grant element of at least 25 percent. Developed country "donors" provided approximately $57 billion in ODA in 1993, the equivalent of 0.3 percent of Gross National Product (GNP), the lowest percentage level since 1973. Among all donor countries, the U.S. provided the lowest percentage of GNP in 1993, only 0.15 percent.

2. While "structural adjustment" programs vary in their particulars, they have mainly been concerned with reducing deficits in financial dealings with other countries and with balancing government budgets. Measures commonly include cuts in government spending, removal of import controls, devaluation of currencies, and privatization of government enterprises. Critics argue that while economic crisis clearly demands "adjustments," the packages imposed often take little account of the damage to human capital and fail to bring about the long-term economic development they promise.

3. These figures refer to the entire African continent. Most easily available statistics separate Sub-Saharan Africa from North Africa, which is generally grouped with the Near East. In this paper, unless otherwise noted "Africa" refers to the entire continent. When statistics are for Sub-Saharan Africa only, that is noted in the text or table.

Table: Compared to What?

U.S. Trade in 1994 with Selected Regions and Countries,
in millions of $

PLACE***********************EXPORTS****IMPORTS****TRADE

World total****************502483.6***668584.6***1171068.2

Compare All of Africa with:

South & Central America*****41708.4***38461.0***80169.4
France**********************13618.7***16699.0***30317.7
Singapore*******************13019.9***15357.7***28377.6
All of Africa****************9164.9***14033.9***23198.8
Italy************************7182.7***14802.2***21984.9
Hong Kong*******************11441.0****9695.6***21136.6

Compare Sub-Saharan Africa with:

Sub-Saharan Africa***********4366.8***11707.5***16074.3
SS Africa (w/o South Africa)*2194.5****9677.0***11871.5
Eastern Europe (inc. FSU)****5301.0****5831.9***11132.9
Former Soviet Union**********3561.6****3847.6****7409.2

Compare African Regions and Countries with:

Former Soviet Union**********3561.6****3847.6****7409.2
SADC (inc SA)****************2649.9****4486.4****7136.3
Ireland**********************3418.6****2893.5****6312.1
Russia***********************2578.1****3245.0****5823.1
Nigeria***********************509.1****4429.9****4939.0
South Africa*****************2172.3****2030.5****4202.8
Eastern Europe(w/o FSU)******1739.5****1984.3****3723.8
Norway***********************1267.3****2353.4****3620.7
Egypt************************2854.8*****548.7****3403.5
SADC (w/o South Africa)*******477.6****2455.9****2933.5
Algeria**********************1191.5****1526.9****2718.4
Kuwait***********************1175.9****1457.5****2633.4
Angola************************197.3****2061.3****2258.6
Poland************************625.2*****651.2****1276.4

Definitions of regions used in table:

Sub-Saharan Africa: All African countries except Algeria, Morocco, Tunisia, Western Sahara, Libya, and Egypt.

SADC (Southern Africa Development Community): Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe.

Eastern Europe: Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Poland, Romania, Russia, Slovakia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan.

Former Soviet Republics: Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan.

South/Central America - Anguilla, Antigua and Barbuda, Argentina, Aruba, Bahamas, Barbados, Belize, Bermuda, Bolivia, Brazil, British Virgin Islands, Cayman Islands, Chile, Colombia, Costa Rica, Cuba, Dominica, Dominican Republic, Ecuador, El Salvador, Falkland Islands, French Guiana, Grenada, Guadeloupe, Guatemala, Guyana, Haiti, Honduras, Jamaica, Martinique, Montserrat, Netherland Antilles, Nicaragua, Panama, Paraguay, Peru, St. Kitts and Nevis, St. Lucia, Surinam, Trinidad and Tobago, Turks and Caicos Islands, Uruguay, Venezuela.

Source: Bureau of the Census, Foreign Trade Division

(continued from part 1)

The Global Trading System Handicaps Africa

As currently structured, the global trading system is not especially friendly to African exports. The recently renegotiated General Agreement on Tariffs and Trade (GATT) Treaty(4) did little to ease the restrictions on the ability of Africa to export to America and elsewhere. In fact, while lowering tariffs will have different impacts on different African countries and sectors, most analysts agree that treaty implementation will have an overall negative impact on Africa's trade prospects, by raising prices of imported foods and removing trade concessions previously granted by European countries. Those countries most able to take advantage of the new opportunities will be those with better trading infrastructures and a larger share in the world market already.(5)

Tariff escalation, that is the fact that import duties generally become higher for products with greater proportion of value added by processing, does considerable harm to Africa's efforts to industrialize itself. Most African countries have an under-exploited export potential, which can be translated into economic growth with virtually no additional monetary assistance from abroad. Foremost among such potentials is the option of processing Africa's primary commodities prior to their shipment abroad. If Zambia could process its copper, Guinea its bauxite, Ghana its cocoa, Ethiopia its coffee, the value added to these exports would provide both employment and vitally needed foreign exchange for these struggling economies.

The fact that the tariff codes raise the levy with each higher level of processing of the raw item discourages such structural changes. So does attaching quotas on the importation of semi-processed and processed goods into the developed countries. This can have even more significant effects in blocking Africa's imports than the tariff escalation practices.

Another widespread practice, subsidizing U.S. and European food exports, has discouraged African farmers from growing wheat and other foodstuffs. To be sure, these subsidized foodstuffs provide a short-term benefit (lower food prices) to the African economies, but in doing so they perform a long- term disservice by driving domestic farmers out of business.

In theory, the latest round (Uruguay Round) of GATT, leading to reduction of many such trade barriers, should open up new opportunities for African countries, as for other countries. In fact, developed countries were well able to fight for detailed provisions defending their interests in the complex treaty negotiations, and are best placed to make the transitions needed.

Many GATT provisions have ambivalent effects when they are applied to Africa. The Trade Related Investment Measures (TRIMS)(6), for example, are designed to make foreign investment more attractive to foreigners, an objective widely shared by both sides. At the same time, some of the TRIMS provisions may be viewed as affronts to the national sovereignty and as unwarranted efforts to repeal local legislation. Indeed, while attracting foreign investors and stimulating trade, these provisions may also discourage local investors and self-reliant development.

Thus, while African countries may open their economies more widely to imports and investments from other countries, they may not have the capacity to take advantage of new opportunities for exports in sectors other than primary commodities.

Unfortunately, the architects of the global trading system, including the U.S., display very little sensitivity to these issues. Aside from its traditional purchases of critical commodity and mineral imports from Africa, the U.S. commercial interest in Africa is almost exclusively focused on what it can sell rather than on what more it can buy. There seems to be little recognition of the need for Africa to increase its exports and shift its pattern of exports to enable it to service its debt as well as to increase its purchases.

Breaking Out of the Colonial Model

Sparked by the severely deteriorating economic situation which they faced in the early eighties, African countries sketched out an alternative to the export-led development strategy inherited from the colonial era. Instead of continuing to use exports as their engine of growth, they expressed a desire to place greater emphasis on producing goods for consumption within Africa itself, and developing strategies which could shift foreign trade away from the traditional dependence on a few primary commodities.(7)

One aspect of the strategy was termed "collective self- reliance," acknowledging the need to create sub-regional economic entities which could offer economies of scale in both production and marketing. A number of such sub-regional groupings were already in existence (COMESA, SADC, ECOWAS, and others)(8) but were suffering from general neglect by the Africans and from dismissal as unfeasible by the major donor organizations. This donor reticence softened over the decade, however, and in 1991, African heads of state collectively committed themselves to the creation of an African Economic Community by 2025, to be built on the sub-regional economic structures, which hopefully would have matured by then.

In the long term, Africa's potential for trade will depend on building up productive capacity within the continent for goods more in demand by the outside world. U.S. trade policy towards Africa should be consciously aimed at assisting such structural changes, as well as satisfying the more immediate needs for imports of primary commodities and export opportunities for U.S. companies.

Elements of a U.S.-Africa Trade Policy

It is in the long-run interest of all peoples that the yawning gap between economic conditions in Africa and in the United States be seen to be closing. That is not the case now. Given the fact of diminishing aid resources it is imperative that less costly instruments be found to address this problem. Trade is one such instrument.

To the extent that U.S. policymakers have focused on trade with Africa, it has primarily been in the context of encouraging U.S. exports to Africa. There are indeed many opportunities in this regard, particularly in South Africa but also around the continent. The principal barriers on the U.S. side are the lack of sufficient detailed knowledge of the opportunities, a gap which both government and private efforts can help to fill (see, for example, the African Business Handbook, described below).

In order for trade growth to be sustainable, however, it must be a two-way street. It would be short-sighted for the U.S. to concentrate exclusively on immediate export opportunities, and import of the traditional primary commodities. There are a number of trade-related routes by which the U.S. could bring genuine assistance to Africa, and ultimately, to itself. They need not entail large outlays of money.

In 1994, Congress, recognizing the difficulties Africa faced in adjusting to the new GATT treaty, mandated the Administration to implement a "comprehensive trade and development policy in Africa" and to report annually, for four years, on the steps taken to carry out this instruction. The results to date have been extremely limited. The administration has proposed a program of assistance to U.S. companies interested in trade and investment in the SADC area and in four other African countries (Ghana, Gabon, Uganda and Cote d'Ivoire). But critics feel the plan still falls far short of a multi-faceted strategy focused on facilitating development of Africa's trade, and some members of Congress plan to continue pushing for greater efforts. The following list, although general in character, indicates areas which warrant much more detailed attention from policy- makers.

(1) Encouraging the Production of African Products The U.S. is well suited to help Africa to identify new products which it might develop for export, and to provide the technical assistance to initiate such industries. In some cases, such as tropical food products, a limiting factor may be the quality standards required by U.S. importers. Technical assistance can overcome this problem with a minimum of effort.

(2) Countering Harmful Effects of GATT

The GATT provisions are set until the next round of negotiations. However, GATT member countries have some flexibility in implementing some of its provisions and the U.S. should take advantage of these opportunities. Furthermore, the World Trade Organization (WTO), the new organization designated to administer the treaty, is in its infancy. There will be numerous opportunities for the U.S. to influence the direction in which it goes, especially with respect to developing-country relationships.

(3) Liberalization of the GSP

The Generalized System of Preferences (GSP) is probably the most important legislation which affects African exports to the U.S. Its intent and purpose was to ease some of the burdens placed on developing countries' trade by the creation of GATT. The GSP created the option for exempting certain developing country exports from the restrictive effects of the reciprocity provisions of GATT. Each developed country enacts its own legislation. Under the U.S. system, specific countries and products are included as eligible when designated as such by the office of the U.S. Trade Representative, an agency directly responsible to the president.

In practice, the GSP has been of very limited benefit to the poorest countries, such as those in Africa. Despite proposals to reform the program suggested in 1994 and 1995, the GSP was renewed in 1995 for five years with little change. Even without legislative reform, however, African countries could be assisted in taking advantage of the complex administrative procedures for obtaining exemption for specific products.

(4) Assisting the Regional Integration Process

Regional integration offers Africa its greatest hope for escaping from its current economic predicament. Achieving it will be difficult and will require serious financial, technical and moral support from the U.S. and other foreign donors. The U.S. could open foreign commercial service offices at the headquarters of each of the major African sub-regional entities, such as COMESA, SADC, and ECOWAS, to promote the sub-regional concept among U.S. investors.

(5) Reducing African Debt

To service its enormous debt obligations, Africa owes in excess of $ 35 billion annually to the developed countries and international financial institutions. This obligation swamps whatever surpluses Africa may have in its trade balances. Although the debt is not being fully serviced. it should be forgiven or scaled down to a level which is manageable, so that Africa can move ahead with its development. It is particularly urgent to consider Africa's debt to the international financial institutions as well as bilateral debt.

(6) Increasing the Provision of Credit

With the decline in aid monies, Africa is in urgent need of financing for its necessary imports of U.S. goods, and for making capital investments. The Export-Import Bank, a leading U.S. agency charged with this mission, is currently inactive in most of Africa. This void should be reversed. Other U.S. capital-providing agencies, such as the Overseas Private Investment Corporation (OPIC) and other specialized government programs for promotion of trade and investment, should be widely represented in Africa as they are in Eastern Europe.

Selected Information Resources

The third bi-annual African Business Handbook, for 1995-1996, is due out in December 1995. This extensive compilation of general background, statistics, and contact information for a wide variety of government agencies, companies and other groups, costs $35 and is published by 21st Century Africa, Inc., 818 18th St. NW, Suite 810, Washington, DC 20006. Tel: (202) 659-6473; Fax: (202) 659-6475.

Africa Can Compete! Export Opportunities and Challenges for Garments and Home Products in the U.S. Market. Tyler Biggs et al. World Bank Discussion Paper 242 (June 1994). 84 pages. ISBN: 0-8213-2838-7. $7.95.

More information on the impact of GSP, and the failure to use it to benefit African countries, is available from the Environmental and Energy Study Institute (EESI), 122 C St. NW, Suite 700, Washington, DC 20001. Tel: (202) 628-1400; Fax: (202) 628-1825; E-mail: eesi@igc.apc.org.

Notes for part 2:

4. GATT is the international agreement which has regulated most world trade since 1947. In the Uruguay Round, lasting from 1986 through 1994, negotiators eventually agreed on new rules for tariff reduction, the formation of a new World Trade Organization (WTO), and other measures aimed at liberalizing international trade.

5. See Wall Street Journal, Aug. 15, 1994, "Sub-Saharan Africa Is Seen as Big Loser in GATT's New World Trade Accord,"Congressional Research Service, Africa: Impact of the Uruguay Trade Round Agreements, Oct. 3, 1994; U.S. International Trade Commission, Posthearing Brief in INV. No. 331 362, "U.S. Africa Trade Flows and Effects of the Uruguay Round Agreements and U.S. Trade and Development Policy," Aug. 2, 1995.

6. TRIMS are measures to regulate investment, such as by requiring a certain proportion of local content in manufacturing or a certain percentage of local ownership. The United States, arguing that such measures could have a negative impact on trade, pushed strongly and successfully to include language against such restrictions in the agreement. Developing countries have up to five years, and developed countries up to two years, to eliminate TRIMS which are not in conformity with the agreement.

7. See Africa's Problems ... African Alternatives (APIC, 1992)for an abridged version of the 1989 African Alternative Framework to Structural Adjustment Programs. Other sources introducing these issues include Adebayo Adedeji et al., eds., The Challenge of African Economic Recovery and Development (London: Frank Cass, 1991); Robert S. Browne and Robert J. Cummings, The Lagos Plan of Action vs. the Berg Report (Lawrenceville, VA: Brunswick Publishing, 1984); and James Pickett and Hans Singer, Towards Economic Recovery in Africa (London: Routledge, 1990).

8. SADC stands for Southern African Development Community; ECOWAS for the Economic Community of West African States. For lists of member countries in 1994, see the table in part 1. Mauritius was admitted to SADC as its 12th member in 1995. COMESA (Common Market of East and Southern Africa) is the new name for the PTA (Preferential Trade Area), which overlaps with SADC but also includes the countries of East Africa and the Horn.

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Message-Id: 199512161900.LAA15448@igc3.igc.apc.org From: "APIC" apic@igc.apc.org Date: Sat, 16 Dec 1995 13:58:49 +0000 Subject: Africa: Trade Issue Brief, 1

Editor: aadinar@mail.sas.upenn.edu