Opportunity in Africa: Covington Launches Johannesburg Office

Opportunity in Africa abounds. Half of the world’s 25 fastest-growing economies are on the continent and according to the United Nations (UN), half of the anticipated global population growth between now and 2050 will occur in Africa. Upwards of 800 U.S. companies have a presence in South Africa alone. Yet, challenges remain: only 35 percent of the population in Sub-Saharan Africa has access to electricity and  the World Bank estimates that an annual investment of approximately $90 billion is required to address the region’s infrastructure needs.

Inspired by the continent’s opportunities and eager to address its challenges, on November 13-15, Covington celebrated the opening of its office in Johannesburg, South Africa. As explained by the firm’s chairman Tim Hester in an interview with BBC Africa Business Report, Covington has built a top-notch project finance team in Johannesburg, London, and Dubai that is positioned to service companies throughout the continent.

The firm is also equipped to leverage its global resources to advise companies on the political and regulatory risks they may face in sub-Saharan Africa, focusing on six key compliance areas: (1) anti-corruption (including compliance with the U.S. Foreign Corrupt Practices Act (FCPA) and UK Bribery Act; (2) export controls and economic sanctions; (3) anti-money laundering; (4) privacy and data protection; (5) cybersecurity; and (6) competition, including cartel enforcement.

Complementing this compliance focus is Covington’s Africa Practice and its unparalleled global-problem solving capabilities, led by Witney Schneidman. Covington’s capabilities in this regard were aptly demonstrated by the firm’s assistance to South African telecom operator MTN in 2016, in which Covington Partner and former U.S. Attorney General Eric Holder assisted in negotiations with the Nigerian government, resulting in a favorable resolution that reduced MTN’s financial exposure by more than half.

Mr. Holder joined the Covington delegation in South Africa in November and shared his perspective on numerous issues, including the potential for the extraterritorial application of U.S. anti-corruption laws on the continent. Mr. Holder’s comments come against the backdrop of the corruption scandal involving the Gupta family and President Jacob Zuma, which has implicated a number of prominent multi-national corporates.

As reported by Business Day, Mr. Holder’s comments emphasized the broad extra-territorial reach of U.S. corruption laws, and noted that seven of the ten largest fines levied pursuant to the FCPA were against companies based outside the United States. Mr. Holder also noted the increased cooperation among global enforcement agencies and predicted that cooperation between U.S. authorities and local authorities in Africa would increase as economic growth on the continent continues and where national security issues that affect U.S. interests emerge. As Mr. Holder explained, in view of these risks, it is critical for corporations doing business on the continent to put robust compliance programs in place.

Timothy Hester, Witney Schneidman, Robert Legh (Chair of Bowmans), and Eric Holder, Jr.

To view additional photos of Covington’s recent events in Johannesburg, click here.

Questions about Covington’s capabilities in Africa? Contact Worku Gachou at wgachou@cov.com.

A Guide to December’s ANC Party Congress

The much anticipated 54th National Elective Conference of South Africa’s ruling party, the African National Congress (ANC), is scheduled to kick-off in Johannesburg on December 16, 2017. The primary objective of the conference is to elect a successor to incumbent ANC President, President Jacob Zuma. The person appointed ANC president is expected to lead the ANC in South Africa’s general elections scheduled for 2019, and to become South Africa’s next head of state.

President Zuma is serving his last term as president, and the outcome of the ANC party congress is crucial for his life after government. Over the last 10 years, 783 criminal charges for corruption, fraud, racketeering and money laundering levied by the National Prosecuting Authority against the President have been in abeyance. With a change of the guard, and depending on the outcome of the ANC leadership battle, there is a possibility that these charges could be reinstated.

The tension in the air is palpable with predictions of the outcome of what arguably is the most important elective conference in ANC history. For the first time since the organization was founded in 1912, there are seven presidential candidates.

The two frontrunners are Cyril Ramaphosa, the current Deputy President of the ANC, and Nkosazana Dlamini-Zuma, the ex-wife of President Zuma and former Chairperson of the African Union. President Zuma is on record as supporting his ex-wife to be the heir apparent and is trying to throw his rural base behind her. Ramaphosa is believed to have the support of the urban constituencies and some grass roots backers. Many commentators argue that for President Zuma, a win by Nkosazana Dlamini-Zuma will ensure that he stays out of prison and possibly keep the pendulum of corruption, defined by his enduring relationship with the Guptas, going.

There are a number of predictions about the impact on South Africa’s political landscape if either Cyril Ramaphosa (the CR17 campaign) or Nkosazana Dlamini-Zuma (the NDZ17 campaign) wins.

One such prediction is that if the NDZ17 campaign triumphs, the ANC risks losing the 2019 General Elections. In this scenario, ANC supporters will turn their back on the party, as they would perceive a Dlamini-Zuma win as facilitating a continuation of President Zuma’s legacy of corruption and partisan control of government agencies and law enforcement institutions. The fact that Dlamini-Zuma will be the first female president in the history of the 105 year old organization does count in her favor, and so does her impeccable liberation struggle credentials.

The CR17 campaign is working to restore ANC unity and has adopted a strong anti-corruption position. A CR17 win is expected to lead to cohesion and unity of purpose within the ANC and amongst its alliance partners, the South Africa Communist Party (SACP) and trade union confederation Congress of South Africa Trade Unions (COSATU). In addition to Cyril Ramaphosa’s uncompromising stance against corruption, as well as his insistence on compliance with corporate governance, he is promising to restore confidence in public service, which has been badly depleted. Ramaphosa’s track record also gives hope to those outside government and the ANC, given Ramaphosa’s prior career as a successful businessman, trade union leader and chief negotiator of the interim constitution which guided the transition from Apartheid to democracy. Many believe that a Ramaphosa-led South Africa would stimulate economic growth and job creation and improve the provision of services throughout society. The principal weakness to Ramaphosa’s campaign are a series of emails that linked him to the Marikana massacre in 2012, where the South Africa Police Service (SAPS) opened fire on a crowd of striking mineworkers, killing 34 and leaving 78 seriously injured.

The competition for the ANC leadership post could also lead to another party split, or realignment, such as the one that occurred in 2007 after Thabo Mbeki lost the ANC presidency to President Zuma.

As far as the other five presidential candidates are concerned, they include: ANC Treasurer-General Zweli Mkhize, South African attorney and politician Mathews Phosa, Human Settlements Minister Lindiwe Sisulu, Minster in the Presidency Jeff Radebe and National Assembly Speaker Baleka Mbete.

Political analysts contend that the prospects for these candidates are not as promising as the two front runners, Ramaphosa and Dlamini-Zuma. According to the tallies released beginning of December 2017, press reports indicate that Deputy President Ramaphosa has won the endorsement for the ANC presidency from 374 branches in Gauteng and Nkosazana Dlamini-Zuma was supported by 64 branches of the province, which include Johannesburg and Pretoria. Ramaphosa secured nominations from the Western Cape, Northern Cape and Eastern Cape, while the Free State and North West back Dlamini-Zuma. The remaining two provinces are expected to announce their favoured candidates by December 5, 2017.

The current developments provide a glimpse of the race for the ANC Presidency that has essentially turned into a two-person contest. It is evident that the upcoming national elective conference of the ANC is not only important for the future of South Africa, but also for the future of the ANC. The party’s future, and perhaps that of the country, will be determined by the votes cast by the estimated 4500 ANC branch delegates in two weeks time.

Year of the Flood

Hurricane Harvey bombarded the Gulf Coast of the United States, leaving more than 250,000 people without power and causing substantial financial, physical, and emotional damage in its wake.  Though record-breaking, Harvey was not a singular event.  In 2017, severe rain events like Harvey have impacted many communities and businesses around the world.  Africa is no exception.

In the span of less than eight weeks, there were over 1,000 people killed in mudslides following torrential rains in Sierra Leone, 2,000 people displaced by floods in Uganda, more than 100,000 people fled their homes because of major flooding in Nigeria, and hundreds of homes destroyed and families displaced following storms in Niger and Sudan.

According to World Bank research severe weather events have cost an estimated $4.2 trillion between 1980 and 2014.  Experts indicate that at least some of the financial loss in 2017 could have been avoided by repairing faulty drain channels in Sierra Leone to effectively divert floodwaters, or redirecting attention to flood maps, which could have prevented construction in vulnerable floodplains surrounding Houston.

These disaster losses can impact a variety of industries including insurance, oil and gas, manufacturing, utilities, raw materials, and mining.  Knowing that other severe rain events can occur, the question is:  How can stakeholders manage the risk?

A tool businesses and communities can use is disaster risk management, which in many cases involves both disaster risk reduction (“DRR”) (prevention, preparedness, and mitigation) and humanitarian and development action (emergency response, relief, and reconstruction).

Below are three key instruments for businesses to understand when approaching disaster risk management in Africa:

Sendai Framework: Shared Responsibility

The Sendai Framework for Disaster Risk Reduction 2015-2030 (“Sendai”), and its predecessor, the Hyogo Framework, serve as a foundation for sustainable development and international cooperation regarding disaster risk management.

Sendai is a 15-year, voluntary, non-binding agreement which recognizes that the State has the primary role to reduce disaster risk but that responsibility should be shared with other stakeholders including local government and the private sector.

Adopted by the United Nations Member States at the 3rd U.N. World Conference for Disaster Risk Reduction in March 2015, and endorsed by the UN General Assembly, Sendai sets four priorities:

  1. Understanding disaster risk.
  2. Strengthening disaster risk governance to manage disaster risk.
  3. Investing in disaster risk reduction for resilience.
  4. Enhancing disaster preparedness for effective response and to “Build Back Better” in recovery, rehabilitation, and reconstruction.

The Framework also includes seven global targets which aim to reduce economic losses and critical infrastructure damage (Targets (c)-(d)), and increase the number of national and local DRR strategies and level of international cooperation (Targets (e)-(f)).

With a focus on enhancing infrastructure resilience, health and livelihoods, and the provision of adequate support to African countries to allow for the implementation of the framework (Sendai para. 43), Sendai highlights an opportunity for stakeholders in Africa to effect DRR mechanisms.

A global example of Sendai’s role in sustainable development includes the 2017 Cancun High Level Communiqué, where leaders committed to implement the Sendai Framework, in coherence with the Sustainable Development Goals, the Paris Agreement on Climate Change, the New Urban Agenda and other relevant instruments.

Africa’s Regional Platform: Sendai Plus Five

 The Africa Platform emerged from a November 25, 2016 meeting where Government Ministers, heads of delegation, and national disaster management agencies from forty seven African countries agreed on a strategic plan to align disaster risk reduction with global  priorities and targets to reduce disaster losses, based on the Sendai Framework.

The Africa Platform supplements Sendai by adopting five additional targets to augment action on disaster risk reduction.  These include:

  • Integration of DRR in school curricula.
  • Making DRR part of sustainable development planning.
  • Increasing domestic spending on DRR.
  • Expanding the number of countries testing their preparedness plans.
  • Increasing the number of partnerships for knowledge management.

Here, companies have the opportunity to partner in the knowledge management space and experience a renewed regional focus on DRR.

 UNISDR Checklist on Essentials for Business in DRR: Data Driven Decision-Making

Key provisions of the Five Essentials for Business in Disaster Risk Reduction include:

  • Promote and develop public-private partnerships for disaster risk reduction to analyze the root causes of continued non-resilient activity.
  • Leverage private sector expertise and strengths to advance disaster risk reduction and mitigation activities, including enhanced resilience and effective response.
  • Foster a collaborative exchange and dissemination of data: assessment, monitoring, prediction, forecasting and early warning purposes.
  • Support national and local risk assessments and socioeconomic cost-benefit analyses and capacity building.
  • Support the development and strengthening of national and local laws, regulations, policies, and programs.

As Former U.N. Secretary General Ban Ki Moon explained at the launch of UNISDR’s 2013 Global Assessment Report, “economic losses linked to disasters will continue to escalate, unless disaster risk management becomes a core part of business investment strategies.”

The instruments above demonstrate that governments, particularly those in Africa, have tools at their disposal when looking towards future disaster risk management. Shared responsibility, regional, and data driven decision-making targets provide guidance for investment and an opportunity for businesses to collaborate.

This has the potential to yield innovative sustainability initiatives, knowledge transfer, corporate social responsibility, and philanthropy, enabling the private sector to become a key driver of risk reduction.

Post-AGOA: Moving to a Reciprocal US-Africa Trade Arrangement

 

The global trade environment is rapidly changing and already affecting the U.S.-Africa trade relationship. Indeed, the African Growth and Opportunity Act (AGOA) was not intended to be permanent. The program was designed as a stepping stone to a more mature trade relationship between the U.S. and the continent. AGOA’s expiration date in 2025 may seem far off but given the complex nature of any trade regime—and the rapidly evolving global trade environment—it is not too soon to begin the complex and difficult work that will provide the foundation for a reciprocal relationship.

In March 2016 the East African community (EAC) took a decision to ban the import of second-hand clothing into the region. The rationale for the ban is the need to protect and promote the textile and leather works industry, which, the EAC reasons, has suffered and failed to develop due to the increased import of second-hand clothing. In response to the proposed ban the U.S.’s Secondary Materials and Recycled Textile Association (SMART) filed a petition with the Office of the U.S. Trade Representative (USTR) requesting an assessment of the EAC countries’ continued eligibility under AGOA. In July 2017 the out-of-cycle review commenced and the parties to the dispute were given an opportunity to testify before the USTR.

The EAC receives second-hand clothing from the U.S., the U.K., Germany, South Korea, Belgium, the Netherlands, Canada, Poland, Italy, JapanIndia, and Pakistan. Notably, the ban is not discriminatory as it bans all second-hand clothing. The ban has not yet been put in place, but so far some of the East African countries have increased tariffs in an effort to discourage imports on the second-hand clothing with a view of eventually phasing out their import completely.

This trade dispute between the U.S. and EAC closely follows a significant trade dispute with South Africa that involved U.S. imports of poultry products into that market. The dispute over poultry was resolved after Congress threatened to deny AGOA benefits to agricultural products from South Africa. The disputes over second-hand clothing and poultry suggest that the time may be ripe to begin moving toward a more reciprocal trade arrangement with African countries that would include the establishment of a negotiated dispute resolution mechanism as opposed to the arbitrary and unilateral out-of-cycle review that currently exists.

THE TRUMP ADMINISTRATION AND AGOA

The Trump administration has been supportive of AGOA, provided that participating African governments comply with the eligibility criteria. In a June speech, Commerce Secretary Wilbur Ross said that the U.S. will continue the transition from aid to trade, a position consistent with the Clinton, Bush, and Obama administrations as it relates to commercial policy toward Africa. The Commerce Department has also continued a high-level advisory committee on Africa that was created by President Obama.

U.S. Trade Representative Robert Lighthizer’s opening remarks at the AGOA Forum in Togo last month also signaled the Trump administration’s support for AGOA. In his comments, Lighthizer noted the bipartisan consensus supporting the program but also said there is a need for greater reciprocity in the trade relationship, given the changes that have taken place on the continent. He specifically referenced AGOA partners who are “implementing reciprocal trade agreements with major developed economies.”

ENVISIONING A POST-AGOA RELATIONSHIP

Despite the Trump administration’s apparent support for AGOA, it is important to begin exploring the structure of a post-AGOA relationship. As African countries enter into reciprocal relationships with other countries, especially the EU, U.S. companies and goods will compete at an increasing commercial disadvantage. This growing commercial disadvantage, inevitably, will pressure Congress to act to protect U.S. companies entering African markets, straining the current strong bipartisan consensus in support of AGOA.

In order to ensure an enduring and mutually beneficial trade relationship, the U.S. and the African Union should create a high-level panel to develop a framework and a path forward to a more reciprocal framework when AGOA expires in 2025. This panel, ideally chaired by Ambassador Lighthizer and AU Trade Commissioner Fatima Haram Acyl, should solicit a range of opinions and perspectives, including from academia, think tanks, private sector representatives, and members of civil society. A progress report on their deliberations would be an important part of the next AGOA Forum.

A CHANGING LANDSCAPE

There are a number of reasons for beginning to plan for the transition to a reciprocal U.S.-African trade relationship. Africa has committed to creating a Comprehensive Free Trade Agreement by the end of 2017, and three regional economic communities—SADC, EAC, and COMESA—have already formed the Tripartite Free Trade area. Africa’s progress on regional integration needs to be reflected in any new trade relationship with the U.S. to ensure that it is mutually beneficial supportive of the region’s integration efforts.

In addition, the European Union is currently negotiating Economic Partnership Agreements (EPAs) with 41 African countries through different blocs. Some EPAs have been have been signed and are now in force while some are still being negotiated. As the 2017 National Trade Estimate Report on Foreign Trade Barriers points out, “The EU-SADC EPA will further erode U.S. export competitiveness in South Africa and the region due to the greater disparities in tariff levels that U.S. exports will face under the EPA.” As the other EPAs take hold across the continent, the disparities adversely affecting American companies will intensify. And, of course, China, as Africa’s largest trading partner, adds to the pressures on U.S. commercial competitiveness in Africa. A new trade relationship between the U.S. and African nations would codify measures related to market access that would provide American companies with more certainty, which would be helpful in competing with Chinese companies.

From the U.S. side, Congress will have to develop a structure for a trade agreement that takes into account Africa’s development priorities. At the same time, market access for goods and services, government procurement, and dispute resolution mechanisms, among other issues, will need to be consistent with those arrangements that Africa’s other trade partners enjoy.

AFRICA’S NEGOTIATING CAPABILITY

The days of non-reciprocal trade arrangements are gone. The successfully negotiated EPAs between the EU and different African regions indicate the ability of African countries to negotiate reciprocal trade agreements with the developed world. The EPAs that have been concluded thus far have struck a balance between creating trade opportunities for goods from both regions as well as placing measures to protect sensitive products in African countries.

AGOA has had its winners and losers: There are countries that have benefitted greatly from AGOA while many have not taken advantage of the program’s wide range of eligible products. One needs to only look at the trade volumes between the AGOA-eligible countries and the U.S to note the disparities between the volumes of trade between certain African countries and the U.S. A post-AGOA relationship should be one that is beneficial to all parties. An analysis of the constraints of those countries that have not fully utilized AGOA is a necessary exercise and should be part of our proposed high-level U.S.-AU panel.

For some countries, particularly the least-developed countries, there may be a need for agreements with a stronger emphasis on investment while for others a reciprocal agreement granting market access with specific limits will suffice. There may also be a need to negotiate with sub-Saharan African countries within different regional groupings as opposed to trying to negotiate with the continent as a whole in order to ensure that the varied interests are sufficiently covered. When AGOA was extended in 2015, eligible countries were asked to formulate AGOA strategies. These strategies can be used to inform how the countries should be grouped in negotiating the post AGOA relationship, and they should be completed by all AGOA beneficiaries. The time is now to begin planning for the next phase of the U.S.-African trade relationship.

This blog was cross-posted on Brookings’ “Africa in Focus” blog.

African Commission on Human and Peoples’ Rights: Demonstrating a Firmer Stance?

The African Commission on Human and Peoples’ Rights has issued a decision to hold the government of the Democratic Republic of the Congo responsible for the massacre of over 70 people in Kilwa, recommending: i) that the government provide compensation of US $2.56 million to eight victims and their families (the largest sum that the Commission has ever awarded); and ii) “take all due measures to prosecute and punish agents of the state and Anvil Mining Company staff” for their alleged role in the massacre. Following seven years of deliberation by the Commission and unsuccessful attempted claims in national courts in Canada and Australia and a failed military prosecution in the Democratic Republic of Congo, this decision perhaps indicates a hardening stance by the regional human rights institution towards private companies operating in the region who are connected to alleged human rights violations.

The decision relates to human rights violations that took place in Kilwa, a remote fishing town in the South East of the Democratic Republic of Congo. In 2004, Australian mining company Anvil was operating a copper and silver mine 50 kilometres from Kilwa when a rebel force attempted to take control of the remote fishing town. The Commission found that, in response to the rebels, Congolese soldiers tortured, shelled and executed civilians. Anvil allegedly provided logistical support to the soldiers, transporting troops to the town using its helicopter and vehicles, providing food and fuel and, according to UN investigators, possibly paying some of the soldiers.

The Commission stated: “At a minimum, [extractive industry companies] should avoid engaging in actions that violate the rights of communities in their zones of operation. This includes not participating in, or supporting, violations of human and peoples’ rights.” The Commission urges the government to implement its recommendations (here) by 17 December, 2017. The African Commission’s findings and recommendations  are not formally binding. Nevertheless, the Commission reports to the Assembly of Heads of State and Government of the African Union, so the decision may create significant political pressure for the Congolese government to implement the Commission’s recommendations. ‎

In the coming months we will continue to monitor the regional and government response, providing further analysis regarding any wider implications for multinationals operating in the region.

Secret Ballot for President Zuma’s Upcoming No Confidence Vote

The speaker of the National Assembly chamber of the South African parliament, Baleka Mbete, ruled that tomorrow’s vote on the motion of no confidence in President Jacob Zuma would be conducted by secret ballot. Most of the country’s opposition parties have welcomed her ruling, viewing it as a catalyst for a different outcome. Since March 2015, three voted-on motions of no confidence in President Zuma have been quashed and five other attempts to procure a vote on such motions were scuppered by the ruling African National Congress (ANC) party

So how would a secret ballot vote enable a different outcome?

The circumstances surrounding tomorrow’s vote of no confidence are different to those surrounding previous votes of no confidence in President Zuma. For starters, the current vote was called soon after the President fired the then Minister of Finance, Pravin Gordhan and the deputy Minister of Finance, Mcebisi Jonas in an unexpected cabinet reshuffle – a move that several senior ANC officials publicly spoke out against, and which according to financial analysts was a key reason for South Africa’s credit downgrade to junk status. Further, the vote is being heard close to four months after it was originally scheduled for hearing, and numerous intervening, and unflattering, events have strengthen the opposition parties’ position.

The delay in hearing the debate was partially attributed to a Constitutional Court application moved by opposition parties, UDM (United Democratic Movement) and EFF (Economic Freedom Fighters). These opposition parties requested the Constitutional Court (the highest court in the country) to order the Speaker to conduct the vote on the motion of no confidence by secret ballot. The Speaker argued in her court papers that she did not have constitutional powers to institute a secret ballot for such vote.  The Constitutional Court declined the opposition parties’ request, stating that such an order would violate the separation of powers. Instead, the Constitutional Court, in a unanimous decision, affirmed that the speaker did have the constitutional powers to institute a secret ballot for a vote of no confidence in the President. The judgment reads: “[A]s in the case with general elections, where a secret ballot is deemed necessary to enhance the freeness and fairness of the elections, so it is with the election of the president by the National Assembly. This allows members to exercise their vote freely and effectively, in accordance with the conscience of each, without undue influence, intimidation or fear of disapproval by others…”. Bolstered by this decision, the opposition parties threatened to go to court if Baleka Mbete had refused to allow a secret ballot.

Another distinguishing circumstance is the increasing pressure being brought to bear on the President to step down from office. Marches organized by civic organizations, trade unions and opposition political parties over the past four months have drawn tens of thousands of citizens to the streets demanding that President Zuma resign. The ruling party’s alliance partners, the South African Communist Party and trade union federation, Cosatu, have publicly called for the President to step down, and have banned him from attending their respective rallies. Allegations of graft and corruption levelled against those close to the President, including his closest advisors and his sons, have not helped the President ward off the attacks against him.

Further, members of the ANC have been emboldened by public and private persona speaking out, and for the first time have broken rank calling for the President to resign. Some of the ANC members of parliament (MPs) have indicated that they would vote with their conscience (as opposed to adopting the traditional approach of toeing the party line) in the vote tomorrow. The secret ballot gives other ruling party MPs the opportunity to vote with their conscience without fear of reprisal.

The ANC has 249 MPs. For a motion of no confidence in the President to carry, the motion must be supported by a majority of the MPs (i.e. 201 of the 400 MPs in the National Assembly). The opposition parties collectively have 151 MPs in the National Assembly, and therefore need the support of 50 ANC MPs to vote with the opposition parties for the vote to carry.  Julius Malema, leader of the EFF confirmed that his party is lobbying the ANC MPs to vote their leader, President Zuma out of office. The ANC stated that it is confident that its MPs will not vote with opposition parties in the no confidence vote tomorrow.

If the motion of no confidence carries, the President and the entire cabinet must resign. The speaker of the National Assembly becomes the acting President, and the National Assembly must elect a new President from among its members at a time and on a date determined by the Chief Justice of the Constitutional Court not later than 30 days after the vacancy occurs.

A vote which many until today believed would be uneventful has suddenly become a key highlight in South Africa’s political calendar and an event in respect of which the populace keenly awaits the result – as they would ordinarily await the result of a general election.

The Trump Administration’s First African Growth and Opportunity Act Forum

Next week, some 40 African finance and trade ministers, along with a large contingent of senior U.S. government officials will descend upon the coastal city of Lomé, Togo for the annual African Growth and Opportunity Act (AGOA) Forum.

There will be more eyes on this year’s Forum. Aside from Secretary Ross’ brief address at the Corporate Council on Africa’s Annual Summit earlier in the summer, this will be the first opportunity to hear the Trump Administration substantively outline their approach to economic and trade relations with the continent.

Leading the U.S. delegation to the Forum will be U.S. Trade Representative (USTR) Ambassador Robert Lighthizer and he will be joined by representatives from the State Department, Treasury Department, USAID, Department of Agriculture, among other agencies.

AGOA, first approved in May 2000 and subsequently reauthorized, provides duty-free access for more than 6,000 items exported from eligible sub-Saharan African countries. The program is intended to stimulate economic growth through a market based approach that will help Africa integrate into the global economy.

Uniquely, the Administration is mandated by the legislation to organize the Forum annually, for the purpose of “discuss[ing] expanding trade and investment relations between the United States and sub-Saharan Africa and…encouraging joint ventures between small and large businesses.” By all accounts, the AGOA Forum continues to be the primary mechanism, and opportunity, for  discussing policy matters that impact the commercial relationship between the U.S. and Africa. Since the private sector and civil society are integral to these discussions they also have a seat at the table at the Forum.

It is expected that the American delegation will emphasize the importance of adhering to the eligibility criteria of AGOA, particularly on issues related to “the elimination of barriers to United States trade and investment.” AGOA and its cyclical (and off-cycle) review process gives the Administration a significant, and flexible, tool to push African governments on their priority issue – ensuring American companies can fairly compete on the world stage.

A recent example is the successful March 2017 petition for an off-cycle review by the Secondary Materials and Recycled Textiles Association (SMART) claiming that the East African Community’s recent decision to ban imports of used clothing and footwear is a violation of the AGOA eligibility criteria. Last month, the Trade Policy Staff Subcommittee of USTR held an open hearing on the matter and is currently reviewing public comment and testimony with a decision expected by the end of the year.  At stake is the full or partial duty free benefits of Rwanda, Tanzania, and Uganda.

Africans are rightly concerned about the future of AGOA and its associated benefits. Some expect it will be difficult to continue justifying the one-way trade preference when AGOA expires in eight years. Discussions should be begin now on what the U.S. – Africa trade relationship will consist of in a post-AGOA world. As private industry begins making strategic and commercial decisions like future supply chains routes, it would give them some confidence to know that both sides are thinking about next steps.

The U.S. Congress, specifically the House Foreign Affairs Committee, is considering ways to improve and strengthen AGOA. Last week, Chairman Ed Royce and a group of bipartisan committee leaders introduced the AGOA and MCA Modernization Act (H.R. 3445). This legislation encourages policies that promote trade and cooperation, while providing much-needed technical assistance to help eligible partners fully utilize AGOA. Given the recent economic trends of embracing regional trade, this legislation also importantly grants the Millennium Challenge Corporation increased flexibility to support regional integration by allowing up to two simultaneous compacts with an eligible country.

With the attention and manpower that the Trump Administration is dedicating to the AGOA Forum and sustained congressional interest in promoting U.S. – Africa trade, there appears to be an understanding across the U.S. government that sub-Saharan Africa remains an important market for U.S. businesses and the global economy.

Ross Outlines Trump’s Commercial Policy Toward Africa

Last week in a speech to the U.S.-Africa Business Summit sponsored by the Corporate Council on Africa, Secretary of Commerce Wilbur Ross signaled that there would be continuity in U.S. commercial policy to Africa.

Ross struck a positive tone and noted that President Trump described Africa as a “place of opportunity” at the May G-7 meeting in Taormina, Italy. The secretary also noted that the strong growth in U.S. exports to Africa over a 15-year period, total trade is up over the same timeframe, and the U.S. trade deficit with Africa has declined. As he put it, the U.S. has to continue the transition from aid to trade in its relationship with Africa, an approach consistent with the Clinton, Bush, and Obama administrations. With key senior Africa positions still unfilled, especially at the State Department and the National Security Council, Ross’ remarks are a step forward in filling the gap on Trump’s Africa policy.

Here were Ross’ key points:

  • The African Growth and Opportunity Act (AGOA) continues to be the cornerstone of the U.S.-Africa commercial relationship. Ross did say that the Trump administration takes AGOA’s eligibility requirements “very seriously,” which may be a signal that the frequency of out-of-cycle reviews will increase. He said also that the administration will “vigorously protect” U.S. companies and workers, calling on African governments to help U.S. companies resolve obstacles and investment barriers.
  • Though the secretary noted that bilateral trade agreements can be more effective than multilateral trade agreements, Ross made no commitment to increase the number of bilateral investments treaties (BITS) beyond the six the U.S. currently has with governments in sub-Saharan Africa. Nor did he make any reference to a post AGOA relationship with Africa or the need to move toward reciprocity in the trade relationship.
  • Ross made a full-throated appeal for the full implementation of the WTO’s Trade Facilitation Agreement (TFA), which came into force in February. African countries are expected to benefit more than others from the implementation of the TFA, as trade costs in Africa are anticipated to fall on average more than 16 percent.
  • Ross took a not-too-thinly veiled swipe at China’s practice of subsidizing products and bidding low to win procurement contracts. Low-cost procurement, he argued, has often been to Africa’s detriment and a deterrent to American firms entering African markets. At the same time, he noted that U.S. firms were actively pursuing 147 tenders valued at more than $44 billion.
  • Finally, the secretary made two references to “our” Advisory Council on Africa. This appears to signal that the Commerce Department will continue the Obama-era presidential advisory committee on doing business in Africa, albeit under a different name. The continuity of the committee’s existence would be a welcome development, helping ensure continued private sector input into Trump’s commercial policy to the region.

Clearly, several themes were missing from the secretary’s remarks. There was no reference to regional integration, a trend critical to accelerating growth on the continent, creating larger markets, and attracting more U.S. investment and exports. The European Union’s Economic Partnership Agreements, which threaten to put U.S. goods and services at a significant commercial disadvantage across the region, also received no mention. Support for small and medium U.S. companies entering the African market was only mentioned in passing. There were no new U.S. initiatives proposed.

On balance, however, Ross reassured many in the U.S. and Africa who have been looking for an indication of the Trump administration’s commercial policy toward the continent.

ADESINA CHALLENGES THE U.S. 

Indeed, Akinwumi Adesina, the president of the African Development Bank, seemed to signal as much in his remarks following the secretary. Adeptly playing to his American audience, Adesina started with a call to “let us be great together,” and noted that Africa offers investors “the deal of the century.”

The African Development Bank president, however, went on to challenge the Trump administration to shift from not just aid to trade but to investment as well. Adesina made the point, implicitly, that the U.S. is falling behind when it comes to its presence in the African market.

In sharp contrast to Ross’s positive rendering of U.S.-Africa commercial trends, Adesina noted that U.S. exports to Africa have declined from $38 billion in 2014 to $22 billion in 2016. Africa’s exports to the U.S. have declined even more sharply, according to Adesina, $113 billion in 2008 to $26.5 billion in 2015. And, as is well known, China is Africa’s largest trade partner, with $102 billion in exports in 2015.

To underscore his message, Adesina pointed out that Africa’s key partners have launched substantial initiatives toward Africa: Japan at $30 billion, China at $60 billion, and South Korea at $10 billion. India has also opened a $10 billion soft credit window.

The good news from last week’s U.S.-Africa Business Summit is that the Trump administration appears to understand the importance of the African market. As well, Ross was clear in his advocacy for U.S. business success on the continent. However, as Adesina made clear, there is commercial competition across the continent that will only get stronger.

A note from the World Economic Forum on Africa in Durban

Earlier this month, more than 1,000 leaders from business, government, and civil society participated in the World Economic Forum on Africa in Durban in early May with the theme, “Achieving Inclusive Growth through Responsive and Responsible Leadership.”

This note highlights several conversations relevant to the forum’s theme.

The Leadership Challenge

The challenge of responsible leadership was on display from the beginning of the forum: At one of the first plenaries, Zimbabwe’s nonagenarian leader, Robert Mugabe, rambled incoherently about youth, agriculture, and job creation.

In stark contrast, he was followed by Winnie Byanyima, the Ugandan-born executive director of Oxfam International, who said, essentially, that the problem of leadership in Africa is leaders who are too old and stayed in office too long.

Also on the panel was Lindiwe Mazibuko, the former parliamentary leader of the Democratic Alliance in South Africa, who made an impressive appeal to government and the private sector to embrace the continent’s youth and provide jobs and training.

According to the WEF Africa Competitiveness Report 2017, 450 million individuals on the continent will be added to the labor market over the next two decades, and only 100 million jobs are expected to be created during this period.

These two women represent the growing number of individuals on the continent working to identify and implement solutions to these key problems, while Mugabe is an ongoing reminder of Africa’s leadership challenge.

Inclusive Growth

Government regulation is a significant factor related to inclusive growth. This was evident in an exchange between Stephen van Coller, a senior executive at MTN, Africa’s largest cell phone provider, and Sim Tshabalala, co-CEO of Standard Bank, the region’s largest banking network.

Van Coller commented that 50 million of MTN’s 240 million customers across Africa and the Middle East have MTN Mobile Money, of which 16 million are active on a monthly basis. This makes MTN, in addition to the largest cell phone provider on the continent, potentially one of the largest financial services providers too.

Indeed, Sim Tshabalala recognized the challenge that mobile banking represents to traditional banking services—mobile banking is poised to leap frog retail banking in Africa, much like cell phones bypassed landlines. In response, Tshabalala said that “fintech,” which includes an array of mobile-based financial services, can work well with products from traditional banks given the latter’s balance sheet and range of products.

The advantage of mobile products is that they can go “down market,” or reach lower-income individuals faster and more cheaply than traditional banks. In doing so, they have the added advantage of breaking down the barriers between the informal and formal sectors to create more financial inclusivity in a way that traditional banks are struggling with.

Kenya is a case in point. Currently only 2 percent of government bonds in Kenya are purchased by individual investors. However, in March, Kenya became the first country in the world to sell government bonds to citizens over their cell phones. The bond program, known as M-Akiba, was a pilot for raising resources domestically for infrastructure and other projects by selling bond shares for as little as $30 a unit. The cell phone user who purchased the M-Akiba bond did not need to have a bank account. The initial three-year bond offering of $1.5 million will pay an estimated tax-free interest of 10 percent every six months. All shares of debut mobile-based M-Akiba bond were purchased within six days, much faster than the allotted 13 days, and the experience is expected to lead to a second, larger bond offering.

The WEF dialogue on the future of banking in Africa reflected the challenge facing inclusive growth across the continent. While countries such as Tanzania and Kenya, where the mobile banking penetration rates are 84 percent and 68 percent, respectively, are making impressive gains on financial inclusion, progress is not uniform across the continent. In Nigeria, for example, there is an 80 percent mobile phone penetration rate but less than 3 percent of cell phone users have mobile money accounts.

The reason for this difference is that in Kenya and Tanzania there is close cooperation between the cell phone operators and government regulators. The same is not the case in Nigeria and other African countries. Clearly mobile banking can play an important role in expanding financial inclusion. Governments, however, have to create a conducive regulatory environment for the cellular operators to provide the necessary services and to stimulate inclusive growth.

This article originally appeared on The Brookings Institution’s “Africa in Focus” blog.

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