Trade, Not Aid

Summit

The first week of August marked the inaugural U.S.-Africa Leaders Summit, a meeting of nearly 50 African leaders and American businessmen in Washington, D.C. Though taking place nearly six years after President Obama’s first inauguration, the Summit manifested the President’s longstanding interest in stronger U.S.-Africa ties. During his time in the Oval Office, however, President Obama has often been criticized for his lack of serious involvement in Africa.

Until now.

At the tail end of the Obama Administration, the Leadership Summit briefly silenced critics who claimed the President Obama has ignored Africa. The Summit, the first meeting of its kind, was an opportunity for African leaders, most of whom are heads of state, to convene in one place with a sitting American president. After 3 days, the Summit unveiled its greatest initiative: a $33 billion investment plan to catalyze economic activity on the continent.

Unlike previous financial flows to Africa, the Summit’s investment plan is a departure from traditional Official Development Assistance (ODA), usually in the form of bilateral loans. Instead, the investment plan is set to take three forms: $7 billion to encourage trade and investment in Africa, $14 billion from American multi-national corporations (MNC), and the remaining $12 billion for infrastructure development through the USAID Power Africa initiative. The investment package is designed not only to reduce poverty across the continent but also to encourage investment beyond Africa’s primary resources. As such, the investment package may signal a swing of the economic development pendulum from aid to trade.

This marked shift, though a step in the right direction, is only a step. In comparison to the United States’ previous financial flows to Africa, $33 billion is small. In 2013 alone, the U.S. imported $39.3 billion from Africa and exported $24 billion to the continent. Outside of trade, ODA claimed nearly $7 billion to the continent in the same time period. Despite comparatively meager figures, the forthcoming investments could embody a new trend in development assistance for Africa. By shirking traditional bilateral loans, the new investments emphasize the importance of private sector activity rather than corrupt governments.

Only a few countries will benefit from the package’s key investments. The Power Africa Initiative’s newest investment will only benefit six countries, meaning that each country will receive $2.4 billion over the course of five years. While not a small number, the Power Africa investment will close a small section of the continent’s infrastructure gap, worth an estimated $38 billion annually for the next decade. Some critics are further puzzled by the initiative’s strategy of distributing the money for various projects such as mini-grid and off-grid expansion throughout six counties (Ethiopia, Ghana, Kenya, Nigeria, Tanzania, and Liberia) when it could make a greater impact by devoting the money to one project. The Grand Inga Dam, the Trans-African Highway, and the Lesotho Highlands Water Project are all far-reaching projects aimed at improving infrastructure beyond a limited geographic area. Instead of distributing funds to six countries, Power Africa could focus its invest in one of the aforementioned projects, and perhaps even further reduce the Infrastructure Gap.

Wind

Additionally, MNC investment is unlikely to go to the continent’s poorest countries. One of the investment package’s most notable companies Coca-Cola already has offices is Kenya, Nigeria, and South Africa, making it more likely that these countries will receive greater investments. Targeted investment, however, might not be such a bad thing. Countries likely to receive the majority of the investments are those with more stable governments and more trade-friendly economic policies. If anything, investments toward these countries could incentivize countries to improve their own investment climates.

 Perhaps the most prominent of the criticisms of the investment package is that these efforts are too small and too late for lasting impact. Such criticism is well-taken, but the U.S.-Africa Leaders Summit’s investment plan could signal a transition for further U.S.-Africa investments. Unlike traditional ODA, the Summit’s forthcoming investment recognizes the African continent as a legitimate investment location, corresponding to the continent’s impressive GDP growth rate. The Obama Administration cites Africa’s 5.4% growth rate as a promising sign of Africa’s investment potential. With the upcoming investments, the African continent can sustain an upward growth trend. Though the dust has settled on the U.S.-Africa Leaders Summit, the investment’s real work, still lies ahead.

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