Africa has the potential to gleam as one of the world’s greatest jewels. It is widely recognized as the birthplace of the human race, has caches of the most sought after resources on the planet and is teeming with natural beauty and mystery, while being home to nearly 15% of the world’s population. And yet, it remains the poorest and most under-developed continent on the planet. Disease, corruption, poverty, war and genocide have made many of the countries infamous nightmares instead of pearls to marvel.
In Sub-Saharan Africa, the majority of the population survives on less than $3 per day and the poor have only been getting poorer. Looking to build on other initiatives in place, such as the African Growth and Opportunity Act (AOGA) signed in 2000, President Barack Obama is hoping to re-ignite a turnaround in Sub-Saharan Africa by utilizing agreements to encourage direct investment, like bilateral investment treaties (BITs). The purpose is to entice foreign dollars to African countries by soothing the anxieties of investors by providing legal protections and the adoption of market-oriented domestic policies.
Of the 40 BITs the United States has signed over the last three decades, five are in force with Sub-Saharan Africa countries: Cameroon, the Democratic Republic of Congo, Mozambique, the Republic of Congo and Senegal. The U.S. also signed a BIT with Rwanda—one of the fastest growing economies in Africa— in February 2008, but that is still pending Senate approval.
There are two sides to pressing forward with treaties like this now in Africa. On the positive, as a whole, Africa has remained pretty well insulated from the economic crisis that flattened the tires of the rest of the world. According to Coface’s Economic Research and Country Risk Department, Sub-Saharan Africa saw economic growth of 6.1% in 2008, though this year, the gross domestic product (GDP) growth of the region will almost certainly be down a couple of points because of the plunge in raw materials prices. The negative is that the price for copper has tumbled nearly 50%, while platinum and zinc prices have plummeted nearly 70%, and aluminum is down 60%, particularly bad news for the Sub-Saharan region since it generates 14% of the world’s total aluminum production. Also dragging on the region’s GDP is the volatility of oil prices, with the region accounting for 8% of the world’s crude production and Nigeria contributing as much as 15% of the world’s ‘bonny light’ oil production.
But as everyone knows from the countless “Cash 4 Gold” commercials, gold is once more king, and Sub-Saharan Africa accounts for 20% of the world’s gold production.
Because an offshoot of a global recession is a withdrawal of foreign direct investment (FDI), financing conditions are expected to tighten this year in Sub-Saharan Africa. When raw materials and ore prices soared, the United States flooded the region with capital, with Coface reporting that U.S. FDI increased from $18 billion in 2004 to $50 billion in 2007. The United States, in need of more diverse sources of oil, poured the majority of the money into exploration and extraction. The result of which is that over the last decade, Sub-Saharan Africa output represented 25% of the total increase in the world’s oil reserves.
The goal is continue to get more capital inflows to Sub-Saharan Africa, but with the Administration twist of the United States becoming more of a “partner” than “patron.”
“Because trade is a critical platform for Africa’s economic growth, we’re exploring ways to lower global trade barriers to ease the burdens on African farmers and producers,” said Secretary of State Hillary Clinton to leaders at the 8th Annual AGOA Forum on Wednesday, August 5. “Today, Africa accounts for 2% of global trade. If Sub-Saharan Africa were to increase that share by only 1%, it would generate additional export revenues each year greater than the total amount of annual assistance that Africa currently receives.”
Now, the United States has begun negotiations with a tiny island country off Africa’s coast in the Indian Ocean, just east of Madagascar. Mauritius may not be a household name, but Secretary of State Clinton and U.S. Trade Representative Ron Kirk see the country of 1.3 million as the perfect launching pad for a new wave of U.S. investors into Sub-Saharan Africa.
“Mauritius is one of the most economically successful and politically stable countries in Africa,” said Ambassador Kirk. “It has an impressive track record on democracy, economic growth, openness to foreign direct investment, economic diversification and the expansion of trade.”
Mauritius might be best known as the only home of the now extinct dodo, but, since the United States signed a Trade and Investment Framework Agreement (TIFA) with the country in September 2006, it has quickly become a destination for U.S. dollars. Since 2004, the United States’ direct investment position in Mauritius has increased 700% and from 2006 to year-end 2007, the U.S. position increased 83% to $2.9 billion. Diamonds, textiles and such items are the primary exports to the United States, though the country’s main cash crop is sugar cane, grown on nearly 90% of the cultivatable land on the island and accounting for 15% of export earnings. Mauritius is making a push into financial services and its banking sector has received considerable attention with close to $1 billion in foreign investment.
With just a little over 40 years of independence, the country is flourishing, many eyeing it as a gateway to South Africa, India and China. Inflation has fallen from near double-digits at the tail end of 2008 to around 6% this year. And Mauritius, points out Coface, has begun adopting a more accommodating approach to fiscal policy, with duties on a variety of items, such as construction materials and food, being discontinued, while duties on household goods and automotive parts have been cut in half. Being an island country, Mauritius relies heavily on food and energy imports. The country’s total GDP is a mere $6.3 billion, but imports this year will likely top $4.7 billion, most of that originating from India and China.
Matthew Carr, NACM staff writer. Follow us on Twitter @NACM_National