Until recently, the word “Africa” rarely appeared in any sentence mentioning “economic opportunity.” For decades, Africa instead was all but synonymous with “poverty,” “disease” and “dictatorship.”
That mindset is changing, thanks to higher prices for Africa’s vast array of raw materials; a stronger local focus on good governance and fiscal responsibility; and enormous investments by China’s state-owned enterprises, hungry for Africa’s minerals. Recovering from an annual growth rate of 1.9 percent during the global recession, the nations of sub-Saharan Africa reached 3.8 percent growth in 2010, and 4.3 percent in 2011, according to the World Bank.
“Major companies are coming to us that weren’t interested in Africa in the past,” said Stephen Hayes, president of Washington-based Corporate Council on Africa. “Companies like Microsoft, IBM, Procter & Gamble, Wal-Mart and Cummins all see Africa as a very good opportunity” to tap into Africa’s rising middle class, which amounts to about 120 million consumers, according to the African Development Bank.
Wal-Mart, for example, recently acquired Massmart, a South African retailer group that owns nine wholesale and retail chains — including 330 stores — that operate in 12 sub-Saharan African nations, such as Tanzania, Uganda, Nigeria and Ghana. “A lot of African countries are becoming better investment opportunities,” Hayes said.
Stronger commodity prices for the continent’s exports of natural resources, including iron ore, copper and crude oil, are only part of the story. Africa’s recent growth is based on political and economic foundations that are likely to last, supporters of the continent say. “Africa has experienced an amazing renaissance. All but a handful of countries have been pursuing the path toward democracy, respect for the law and even responsible economic policy,” said Stephen Lande, president of Washington-based consultant Manchester Trade.
Paul Ryberg, president of Washington-based advocacy group African Coalition for Trade, said, “There has been a significant improvement; a lot more democracy, and a lot less military government. The economic base is small, but it is growing at a high rate.”
Responding to growing demand for ocean services, Greg Howard, chief executive of Clark, N.J.-based non-vessel-operating common carrier CaroTrans, recently announced a new Charleston-to-South Africa less-than-containerload export service. “Africa is becoming a much more important market for us,” Howard said.
CaroTrans has served South Africa for nearly two decades in partnership with South African NVOCC World Cargo Services. “I see more optimism today,” Howard said. “The toughest part is (behind them), and business there is doing well. It has been a roller-coaster ride.”
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With African agribusiness volumes rising, U.S. exporters such as John Deere and Caterpillar are shipping larger volumes of irrigation equipment, tractors and tractor parts used for growing food, not just in southern Africa but also in East African nations such as Tanzania and Kenya, Howard said.
Still, the road to prosperity will remain full of twists, turns and delays. Africa’s logistics costs remain high because of its substandard roads and railroads, and frequent, often prolonged, power outages. In landlocked Malawi, for example, transportation costs amount to 55 percent of the average cost of merchandise. At the Port of Durban, South Africa, Transnet, the government-owned port operator, charges an average container vessel $182,151 to dock, more than double the average cost of the world’s top 100 harbors, according to local press reports.
Air connections to Africa still follow colonial-era patterns, often forcing cargo and passengers from East and West Africa to pass through air hubs in Europe rather than flying directly to other regions within the continent.
Meanwhile, the U.S. government has fewer resources at its disposal, and U.S. banks can’t afford to plunge quickly into unfamiliar new markets. “There aren’t a lot of banks that are willing to support U.S. investment in Africa. The banks are extremely risk-averse,” Hayes said.
Even in the continent’s wealthiest economy, South Africa, about 39 percent of the population still lives below the poverty line, officially $53 a month, while overall unemployment is some 25 percent. Despite progress toward good governance, countries such as Nigeria continue to suffer endemic corruption.
Slowly but surely, however, Africa is upgrading its transportation and logistics infrastructure. In an effort to reduce costs, South Africa in February said government-owned Transnet would invest $39.6 billion in rail and pipeline projects over the next seven years. President Jacob Zuma said the new initiatives would generate thousands of jobs by connecting key inland regions to the sea. Transnet also is expanding the nation’s ports, including a $2.8 billion investment to modernize Durban.
In a critical cross-border initiative, a 90-mile railway line will be constructed between South Africa and landlocked Swaziland, and Angola and Mozambique are rebuilding railways destroyed during decades of civil war. And with financial backing from China and India, countries such as Namibia, Botswana, Zambia, Zimbabwe and Malawi are developing new transportation routes.
For U.S. companies, China’s growing profile in Africa is a nagging issue and an opportunity. “How does the U.S. maintain its competitiveness against highly subsidized Chinese investments and the highly aggressive investments from the European Union?” Lande asked. “The Chinese are eating our lunch, and the EU uses unfair trade practices.”
Ryberg added, “The real challenge is the competition from China. It is hard for American companies to compete versus Chinese government-subsidized companies.”
According to Standard Bank Group, which is now 20 percent owned by a Chinese bank, China’s stock of investment in Africa could rise to $50 billion by 2015 — from about $30 billion in 2009 — and annual bilateral Africa-China trade could reach $300 billion by 2015, twice the $150 billion figure recorded in 2010.
For all that, Hayes argued that “China has played a valuable role” by stirring up interest in Africa among U.S. companies. “Thank God for the Chinese. They have made us more aware of Africa.”
“I am not afraid of the Chinese,” Howard said. “They create a tremendous opportunity if you are ready for them.” For example, he noted Chinese investors have acquired a lot of the land in Tanzania and Kenya that is being transformed into productive agricultural properties with the use of U.S.-made farm equipment.
“The companies planting and harvesting in those countries are then exporting that food back to China,” Howard said. In addition to U.S.-made machinery shipped in containerized and breakbulk vessels, those projects use a significant amount of U.S.-made chemicals, pesticides and fertilizers.
Hayes believes it’s impossible for many U.S. companies to compete against China’s state-owned enterprises, which benefit from Chinese-government subsidies. But, he said, “A lot of Chinese private sector companies can be viable partners” for U.S. companies in Africa.
Officially, China made direct investments of $13 billion in Africa in 2011, but those figures don’t include Chinese private sector investors from Hong Kong or Chinese private sector companies operating out of offshore locations.
Another significant challenge involves the fate of the U.S. African Growth and Opportunity Act, which offers tangible incentives for African countries to open their economies and build free markets, by providing duty-free access to the U.S. market. AGOA is “the most liberal treatment available to any country or region with which the United States does not have a free trade agreement,” the U.S. Trade Representative’s Office said.
Thanks to AGOA, African apparel exporters enjoyed strong export growth from 2000 until Jan. 1, 2005, when the World Trade Organization’s quotas on apparel imports from China ended. The end of Chinese quotas led to a flood of imports of cheap Chinese apparel into the United States. But in the past year or two, African apparel suppliers have taken advantage of rising costs in China and a “record run-up in cotton prices” to increase their share of the U.S. apparel market, Ryberg said. The relatively good news: “Now we (Africa) are barely holding our own” against Asian suppliers for U.S. business, he said.
Things could quickly go south for African apparel suppliers, however. AGOA’s “third country fabric” provision is set to expire on Sept. 30 and must be extended if the continent isn’t to lose even those modest gains. Extending the provision is essential, Ryberg explained, because more than 90 percent of apparel made in Africa is produced with at least some non-African fabric. If the duty exemptions aren’t extended to the non-African fabric after September, prices for African-made apparel will rise, and African suppliers no longer will be able to compete on price.
Despite AGOA being “a noncontroversial issue supported by everyone” in Congress, politics could get in the way of extending the provision, Ryberg said. Single-vehicle bills “rarely move forward” in Congress today, and the recent authorizations extending Trade Adjustment Assistance and the Generalized System of Preferences were appended to the U.S. free trade pacts with South Korea (TAA) and Colombia (GSP), rather than approved as separate bills.
The upcoming Customs reauthorization bill would be a logical vehicle for extending the third-country fabric provision, Ryberg said, but “that’s not going to move early enough” to meet the Sept. 30 deadline.
The consequences of such a failure could be dire. “Apparel orders are placed up to nine months in advance, and we (African suppliers) are already losing orders,” Ryberg said. “Once they are gone, those orders are not coming back.”
What to do? Ryberg said the African Coalition for Trade is trying to convince House leaders to pass the AGOA third-country fabric extension via the suspension of the rules because “it is completely noncontroversial.” In pursuing that goal, Ryberg is joining forces with U.S. textile organizations whose members might be threatened by low-cost apparel imports, but view AGOA as no threat to their members, given the modest scale of African apparel production.
More broadly, although AGOA has helped Africa develop nontraditional markets such as apparel and has created a welcoming environment for foreign investment, AGOA has done those things “behind the scenes,” Lande said. AGOA has “not succeeded in being transformative, in the sense of promoting a whole new range of production opportunities” for African entrepreneurs and workers. Moreover, “a lot of the people who benefit from these efforts are our competitors,” including the Chinese and Europeans, he said.
In the final analysis, Africa may have only limited appeal for many multinationals until a concerted effort is made to rebrand the continent positively, Lande said. There are nearly four dozen countries in sub-Saharan Africa, but if just a couple of them generate bad news on a given day, the headlines create the impression the entire continent is in turmoil. Good news about Africa usually gets buried.
As a result, many potential business partners never learn that “most African countries now have good records” and are continuing to make significant improvements, Lande said.
Meanwhile, Chinese investors continue to ignore the negative headlines, and pursue the vast opportunities.
Contact Alan M. Field at email@example.com.