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Note: This document is from the archive of the Africa Policy E-Journal, published by the Africa Policy Information Center (APIC) from 1995 to 2001 and by Africa Action from 2001 to 2003. APIC was merged into Africa Action in 2001. Please note that many outdated links in this archived document may not work.

Africa: US Economic Proposals (Commentary)
Date distributed (ymd): 970909
Document reposted by APIC

In recent years, US economic policies towards Africa have become the subject of growing debate. Since 1995, Congress has required the Executive branch to report annually on its trade and development policies in Africa. The second such report, published this February, is available on the World Wide Web at
http://www.ustr.gov/reports/africa/1997/index.html.

Some members of the US House of Representatives responded to last year's report by introducing the "Africa Growth and Opportunity Act," calling for increased US trade with and investment in African nations. A revised version of this bill was reintroduced this year in the House (H.R. 1432) and the Senate (S. 778) and is available from the Library of Congress' legislative Web site (http://thomas.loc.gov).

The House Africa Subcommittee and the full International Relations Committee have reviewed and amended H.R. 1432 (amendments which are not yet reflected in the version on the Web). Among the changes is a condition preventing countries that have consistently committed "gross violations of human rights" from participating in the trade and investment programs outlined in the Act. The full House is expected to consider the bill later this year.

Meanwhile, on the eve of the Denver Summit in June, President Clinton unveiled his plans for an "Economic Partnership with Africa." Its provisions are roughly comparable to those of H.R. 1432.

Both the legislation and the President's proposals have received mixed reactions. The Washington Office on Africa and other US non-governmental organizations have welcomed the US government's recognition of the need to adopt a range of measures--including debt relief, development assistance, and trade and investment--to support African development initiatives. ) However, they remain sharply critical of many of the plans' provisions, particularly the package of economic changes that countries would be required to adopt in order to take part in new trade and investment programs. See, for example, the NGO statement to the Denver Summit (http://www.africapolicy.org/denver/denindex.htm) and the critique by Oxfam International
(http://www.africafocus.org/docs97/ox9706.php).

To date, African responses have come primarily from government officials, diplomats, and business leaders. Representatives of African civil society have had less opportunity to comment on these initiatives. This posting contains one such commentary, by Oduor Ong'wen of EcoNews Africa in Kenya. Another, by Tetteh Hormeku of the Third World Network in Accra, Ghana, publishers of African Agenda, will be distributed later this week.

WHY US - AFRICA GROWTH AND OPPORTUNITY BILL FAILS THE TEST

Comments by Oduor Ong'wen

BACKGROUND

The US House of Representative has a new Bill to be known as Africa Growth and Opportunity Act (HR 1432), ostensibly aimed at addressing the development crisis in sub-Saharan Africa. The Bill, which enjoys bi-partisan support in Congress, is said to aim at providing trade, aid and debt relief incentives for governments seeking to accelerate economic growth. The Bill follows recommendations in March 1997 made by representatives of the American corporate interests.

The group of 68, convened by The American Assembly, a prominent public policy forum, called for an urgent adoption of a "Partnership with Africa," a package of trade, aid, and investment initiatives designed to consolidate democratic and economic reforms that have taken hold in many of Africa's 54 nations.
(See http://www.africafocus.org/docs97/amas9704.1.php and http://www.africafocus.org/docs97/amas9704.2.php).

It also called for President Bill Clinton to travel to Africa to help focus attention on the opportunities presented by recent favourable political and economic trends here. The group issued its recommendations just as First Lady Hillary Rodham Clinton began a two-week trip that took her to Africa - the first by an American First Lady.

"What is required is not withdrawal but, to the contrary, a far greater and more meaningful engagement with Africa," said the group after a four-day meeting outside New York City, chaired by Washington's former ambassador to the United Nations, Donald McHenry.

The group agreed that presidential leadership was required to ensure that Africa received its due. "For us to take real advantage of what is happening in Africa will require leadership at the highest levels of our government, as well as other sectors of American society," said David Miller, chairman of the Corporate Council for Africa who served as U.S. ambassador to Tanzania and Zimbabwe under President Ronald Reagan.

The major recommendations of the group, which were mainly economic, included:

• calls for tax and other incentives to promote U.S. investment in Africa and help strengthen its private sector.
• a call to Washington to scrap tariffs and other import restrictions, including textile quotas that hamper Africa's access to the U.S. market.
• creation of a 300-million-dollar Africa Partnership Fund earmarked for those countries "that demonstrate leadership in the consolidation of democratic institutions and the implementation of market-oriented reforms." The money would be in addition to the roughly 700 million dollars Washington currently provides in bilateral development aid to Africa.
• a demand to the Congress to clear U.S. arrears to the International Development Association (IDA), the World Bank affiliate that provides almost 1.5 billion dollars a year in no-interest loans to African countries, and to the African Development Bank (AfDB) (the US still owes 235 million dollars to IDA's Tenth Replenishment, which expired last year, and an additional 800 million dollars this year. The group suggested that Washington encourage IDA to adopt policies that would enable it to provide direct support to Africa's private sector development, among other recommendations)

They also recommended that the US should also work to improve the terms of multilateral debt reduction proposals for Africa's most debt-burdened nations, both by accelerating the time frame by which countries reforming their economies will be able to reduce their debt and by expanding the number of countries covered by the proposals.

On the security front, they called for Washington to clear its arrears-over one billion dollars-to the United Nations, and especially its peacekeeping operations account. It should also increase military training and assistance from 10 million dollars to 30 million dollars, in part to build Africa's ability to participate in peacekeeping operations, according to the report, which says that a critical ingredient in preventing the outbreak of conflict in Africa will be "strengthening U.S. political will to act."

"Often, the United States has been unprepared and unwilling to deal in a timely way with serious crises in Africa," says the report from the meeting, which included prominent individuals from U.S. business, academic, religious, and non-profit organisations, as well as senior officials from the government and the military participating in their personal capacities.

Africa, according to the group's report, has reached a critical cross-roads in its history. Down one road, lies a future of "failed states" and protracted conflict, such as that which in recent years has afflicted Liberia, Rwanda, Sudan and Zaire, where President Mobutu Sese Seko's 31-year-old regime is tottering in the face of a rebel offensive.

The group said that despite some setbacks, political trends are also more favourable. "We are now in a position to seize the opportunities provided by the emergence of (a) new, democratically elected African leadership committed to market economics, the privatisation of inefficient state industries, and popularly accountable government," the report says. "These nascent changes, largely unforeseen a decade ago, are fragile and need to be supported."

Some of the group's proposals-especially the call to increase U.S. aid by almost 50 percent to reform-minded African countries-fly in the face of conventional wisdom in Washington and Congress, which has sharply reduced foreign commitments, especially in regions not considered "vital" to U.S. interests. The annual non-military international affairs budget, for example, has been cut by roughly 50 percent in real terms since 1985.

Given the record of its past relationship with the SubSaharan Africa (Egypt as a single country receives more US aid than the countries of Sub-Saharan Africa combined), US recognition of the need to address aid, trade and debt problems within an overall strategy is welcome. So, too, is the proposed use of investment guarantees to mobilise private foreign investment for Africa, which currently accounts for less than one percent of global private capital flows. More broadly, the US initiative is rooted in a recognition that the risks posed by Africa's marginalisation are exceptionally high, with deepening poverty and economic decline intensifying national and ethnic rivalries, contributing to environmental problems, and undermining the capacity of governments to provide basic social services.

OBSERVATIONS AND COMMENTS

Encouraging as the US initiative may be, it is flawed in a number of crucial areas.

• It sees Africa as one big market for the US corporate sector to export to without any tangible reciprocal benefit for African countries. Indeed section 8 (a)(1) betrays the real motive and declares who the real beneficiary is: "the lack of competitiveness of sub-Saharan Africa in the global market, especially in the manufacturing sector, make it a limited threat to market disruption and no threat to United States jobs" The next paragraph goes ahead to show that annual textile and apparel exports to Africa amounts to no more than 1 per cent.
• It will bring into the orbit of trade and development assistance "partners" a small cluster of countries regarded by the US President as "success stories", threatening to undermine region-wide initiatives - such as the UN's Special Initiative on Africa - which offer a greater hope of success. Moreover, the US proposals offer relatively minor concessions on trade, mainly in the form of enhanced preferences, allied to insignificant additional aid flows. An additional problem is that pledges of US support for more effective debt relief rest uneasily with the Administration's efforts to delay implementation of the IMF-World Bank's Highly Indebted Poor Country (HIPC) initiative even for Uganda - a country with a long track record in economic reform.
• The Bill mentions the eradication of poverty as one of the goals (Sec 3 (1)) yet new development assistance provisions are absent. In the past three years the US aid budget has been slashed, with spending on development declining from 0.15 per cent to 0.10 per cent of GNP contrary to commitments made five years ago in Rio de Janeiro for ODA to be raised to 0.7 per cent of GNP. Today, the US is at the bottom of the OECD aid list, yet the new initiative offers no new aid, even for areas such as health and education identified as priorities.
• Aid quality issues are also not addressed in the Bill. This is not an approach to development co-operation which will underpin a successful international initiative. US was in Copenhagen and indeed was a party to the Summit's resolution on the 20-20 commitment which calls for 20 per cent of ODA and 20 per cent of the recipient country's annual budget to be channelled to social development. In particular, carefully targeted aid in areas such as micro-finance and rural infrastructure can help poor people to participate in markets on more equitable terms. Similarly, investment in health and education can help to create an enabling environment, in which vulnerable communities are given opportunities.
• Eligibility requirements for qualification under section 4 of the Bill is conditional upon countries implementing economic reform measures deemed acceptable to the US President. These include:
1. promoting free movement of goods and services and factors of production (does this include labour?) between US and SSA
2. rapid trade liberalisation,
3. the withdrawal of trade barriers which protect local agriculture, and
4. incentives for investment.
5. reducing high import and corporate taxes
6. foreign investment issues, such as the provision of national treatment for foreign investors
7. the protection of property rights, such as protection against expropriation, etc.

In practice, these correspond to the economic reforms promoted under structural adjustment programs, and the proposals made under the Multilateral Agreement on Investment (MAI) compliance with which is likely to serve as a litmus test for good practice. The reality is that compliance with these programmes is associated with slow growth, a poor record on investment and, in many cases, failure to protect social investment.

• The trade incentives envisaged under the Act focus on improvements to the US's Generalised System of Preferences, with a commitment to reducing tariffs and enlarging product coverage to include sensitive items such as textiles. As one element in an integrated trade and development strategy, enhanced preferences could yield important benefits. However, experience under the GSP confirms that African countries have been unable to seize existing opportunities because of supply side constraints, including high transport costs and poor infrastructure. Implementation of the Uruguay Round agreement, under which general liberalisation and the phasing out of the Multi-fibre Agreement (MFA) will erode preferences, will have the effect of eroding the already limited advantages of preferences. Failure to address the deeper structural problems associated with Africa's dependence on primary commodities is another source of concern in the US proposal.
• The failure to address the question of coherence between aid, trade and debt policies is another issue. According to Oxfam International, subsidised agricultural production and export dumping by the US and other industrialised countries continues to undermine market opportunities for African producers. The same practices result in African smallholder producers seeing their markets ruined and household incomes decline as a result of cheap imports. Even with the rise in agricultural prices in 1996, the OECD countries spent the equivalent of $166 billion on agricultural subsidies, with the US spending over $7 billion in subsidies for cereal producers.
• While the eligibility criteria are very emphatic on privatisation and unleashing of the market forces in the economies of sub-Saharan Africa, the same is contradicted by the central role of the executive in the US where the Bill seeks to invest the US president with sweeping powers in directing trade. Why doesn't the Bill just leave the US private sector and Africa's business community to strike their own balance?
• It should also be noted that efforts to promote private investment will not be successful as long as Africa's debt crisis persists. Yet the US continues to use its influence to delay implementation of debt reduction under the IMF-World Bank framework for Highly Indebted Poor Countries (HPIC), which though we find to be a move in the right direction, still fails to address the debt problem of majority of the countries of Sub-Saharan Africa.
• Use of tariff and non-tariff barriers to restrict market entry in areas such as textiles, apparel, leather and agriculture further erodes opportunities for the development and growth of indigenous entrepreneurs as well as possibilities for joint ventures in Africa. The visa problems cited in the case of Kenya and Mauritius (Sec 8(c )(1)) should be discussed on a government-to-government and case-by-case basis than rather than being left to the executive whims of Washington.
• The US and other industrialised countries need to look beyond aid to an integrated and coherent strategy for bringing their trade policies into line with the objectives set for development co-operation, particularly with regard to poverty eradication. The Bill is loudly silent on how the US is going to leverage poverty reduction and wider social development measures on its trade and investment regime.
• In Sec 7, the Bill calls for the creation of a US-Sub-Saharan Africa Free Trade Area. A casual glance at the records from NAFTA, particularly Mexico's experience make this a scaring proposal.
• The Bill is silent on what opportunities and concessions will be accorded to Africa to export manufactured, processed and semi-processed goods into the US nor whether the US will open itself to importing services from SSA. It thus only succeeds in reinforcing stereotype compartmentalisation which relegates SSA as a market for US (and other industrialised countries') manufactures and services and a source of cheap raw materials and labour.

For more information: Oduor Ong'wen, EcoNews Africa,
P.O. Box 76406 Nairobi, KENYA;
Tel 254 2 721076/721099/721655; Fax 254 2 725171;
E mail:[email protected].