In its final deliverable of the 2016–2018 term, the President’s Advisory Council on Doing Business in Africa (“Council”), issued a call to the U.S. Government and the American business community to make a deliberate effort towards nurturing greater U.S. commercial engagement with Africa. The final report was prepared by the private-sector members of the council and does not necessarily reflect the views or policies of the Trump Administration.
The final report followed the Council’s fact-finding trip with U.S. Secretary of Commerce Wilbur L. Ross and Under Secretary Gilbert Kaplan to Ethiopia, Kenya, Côte d’Ivoire, and Ghana from June 24–July 5, 2018. The Council’s trip was designed to underscore the commitment by the U.S. government and the American business community to expanding trade and investment in Sub-Saharan Africa. Details of the delegations’ experience in each of the four countries visited are summarized in the full report, available here.
The Council set forth numerous recommendations inspired by the delegations trip to the continent. A summary of the Council’s key recommendations follow.
The Council observed that it is necessary to secure financing in support of trade and investment flows to Africa, while also finding ways to help mitigate risk exposure for U.S. businesses. The Council proposed numerous solutions calculated to promote U.S.-Africa commercial and investment flows. These include:
- Make the Export-Import Bank (EXIM) fully functional. EXIM is the export credit agency of the United States, designed to facilitate exports. For the last three years, EXIM has been unable to authorize transactions of more than $10 million due to a lack of a three-board member quorum. The Council highlights the need for the Senate to confirm pending EXIM nominees and, absent that, encourages the Administration to seek alternative ways to realize a fully functioning EXIM.
- Pair Concessional and Commercial Financing. Selectively blending aid funds with export financing (i.e. concessional financing) is attractive to African governments because such financing is not counted under the IMF’s limits on non-concessional borrowing. The Council highlights this type of financing as an effective method to mitigate competition from China and Europe.
- Promote African country access to U.S. Dollar Liquidity. African nations are experiencing low levels of U.S. dollar reserves as a result of higher dollar-denominated debt servicing, among other issues. This is further complicated by the fact that many African countries have very little revenue inflows from exports and taxes due to the pervasiveness of the informal business sector in most countries. Pressure on U.S. dollar reserves within African countries has an adverse effect on the private sector. Absent a robust response from the U.S. Government, the Council warns of private sector companies turning to alternative currencies like the euro and yuan. To this end, the Council calls on the U.S. Government to explore “how official U.S. agencies can prudently engage with African Central Banks in swapping dollar liquidity for local currencies, baskets of reserve currencies, and/or transferable and liquid commodities.”
- Passing the Better Utilization of Investments Leading to Development Act of 2018 (the BUILD Act). The Council expressed its support for passage of the BUILD Act, which was passed by Congress on October 3 and signed into law by the President on October 5, 2018. The law transforms the Overseas Private Investment Corporation (OPIC), a U.S. Government agency, and components of the United States Agency for International Development (USAID) into a new institution called the U.S. International Development Finance Corporation (IDFC). Witney Schneidman, the Chair of Covington’s Africa practice, discusses the BUILD Act in more detail here.
- Develop Mechanism to Sell Aggregated Risk Exposure from U.S. Agencies to Private Investors. The Council calls for the development of a mechanism to facilitate the ability of private investors to buy aggregated risk exposure from U.S. agencies. Support of trade and investment flows to Africa has attendant risks. Upon deploying and transferring the risks to private investors, the U.S. Government would be able to do more by taking advantage of its competitive strength as it contributes to Africa’s economic growth. This will foster stronger economic ties between the U.S. and the continent, providing ample opportunities accruing for U.S. businesses.
- Increase Visibility of the African Development Bank (AfDB). Noting the commonalities between the goals of AfDB, OPIC, and USAID, the Council calls for an effort to raise the profile of the African Development Bank’s (AfDB) within the U.S. business community. Bringing the AfDB into deals between U.S. and African businesses would be a win-win for all parties concerned.
- Provide private sector public procurement expertise to the U.S. Government. The Council highlighted the need for “more consistent, thoughtful consultation” with the private sector regarding challenges of the competitive tender process in Africa. The Council specifically called for more training of Foreign Commercial Service and Political/Economic officers who are placed in Africa.
- Support Direct or Unsolicited Public Procurement Proposals. In addition to competitive tenders, the Council calls on the U.S. Government to support private sectors proposals submitted directly to African Governments.
- Promotion of Rule-of-Law in Support of Best-Value Procurement. Perceived risks of doing business in Africa continue to deter private sector engagement. The Council calls for continued and enhanced efforts by the U.S. Government to encourage greater transparency and more efficient and predictable processes related to business transactions. The Council highlights this opportunity as having the potential to encourage a “second wave of U.S. firms actively examining opportunities in Africa.”
- Department of Commerce Should Develop a Modern Database Platform. Encouraging many Small and Medium Enterprises (SMEs) to look for new business opportunities in Africa should be a priority for the U.S. The Council observed that most SMEs were risk averse, and lacked information about how to navigate the risks on the African continent. To address these concerns, the U.S. Department of Commerce should create a platform to enhance information dissemination on key investment and other opportunities across Africa.
In their engagement with government officials while in Africa, members of the Council observed that numerous benefits would accrue from governments’ collaboration with industry. A key area of mutual engagement where this could play out to the distinct advantage of all parties is in the modernization of customs processes and regional integration. Other areas of potential improved market access and trade facilitation include cross-border cargo movement, regional economic collaboration, as well as unlocking value in the manufacturing and extractive industries.
The Council recommends that the U.S. Foreign Commercial Service (FCS), the U.S. Trade and Development Agency (USTDA), and the Office of the U.S. Trade Representatives (USTR) engage in the process of connecting U.S. businesses with African governments in the sphere of trade and commerce. The Council also supports an effort to incorporate U.S. private sector input through the African Union, Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA) or Economic Community of West African States (ECOWAS).
Global Value Chains
The Committee noted that African nations would benefit significantly from economic diversification. Both the private and public sector were united on the need for development of value-added products through encouraging domestic economic investments in order to create employment and added value downstream. This would improve revenue collection through taxes and lead to long-term sustainable development.
Africa has always had a low share of global trade, currently around two percent. By establishing robust engagement through its various consulate offices, agencies and U.S. firms active in African markets, the Council encouraged the U.S. Department of Commerce to engage in bilateral discussions to establish specific mechanisms that will advance trade facilitation and regulatory cooperation.
Technology and Digital Economy
Technology is a vital tool in driving economic growth, embraced by African nations throughout the continent. The creation of inclusive digital societies manifests in nearly every aspect of the economy. The Council encouraged U.S. Government’s engagement with local technology partners in the development of market-friendly policies calculated to trigger economic growth and sustainable development. The Council articulated several principles to this end:
• Foster appropriate regulatory policies that support the growth of the digital economy;
• Commit to cross-border data flows;
• Embrace international competition;
• Enable market-based economics and avoid unnecessary regulations; and
• Get data protection right, by recognizing variants across industries in how they use data.
According to the Committee’s report, the volume of exports from the U.S. to Africa has been affected by lack of skilled human capital and the absence of vocational training programs. A significant percent of U.S. exports to Africa require highly skilled operators, without which the consumers of the product would remain unable to purchase the product, even if offered competitively. In order to enhance skills development across the continent, exporters should offer after-sales services and training on the installation and maintenance of the products and technologies in the destination market. This would contribute to the development of Africa’s workforce and demonstrate the U.S. Government’s commitment to the market while increasing the opportunities for U.S. businesses in Africa. This could be achieved through the creation of regional training hubs in order to deliver skills closer to the destination market, which would in turn create brand visibility, foster trust, loyalty, and enhanced reputation.
The Council’s delegation to Africa found that the U.S. Government and U.S. companies need to demonstrate that they are committed to expanding trade and investment in Sub-Saharan Africa, and do so in a coordinated manner. A clear example of such ambition was the signing of Memoranda of Understanding (MOU) between the U.S. Government and three of the governments of the countries visited (Ethiopia, Kenya, and Ghana). This is an encouraging first step designed to invigorate U.S. commercial engagement in Africa.
Godwin Nyengedza, a Covington-Lex Africa fellow, is from the law firm of Scanlen & Holderness in Harare, Zimbabwe.