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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 Please note that many outdated links in this archived document may not work.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 Trade Report, 1
Date Distributed (ymd): 970301
Document reposted by APIC

The second annual report of the United States Trade Representative on Africa trade and development policy was released on February 20. The full text is available on the Web at: http://www.ustr.gov/reports/africa/1997/index.html

This posting contains excerpts from the executive summary of the report. The next posting contains the report's summary of new administration initiatives.

A COMPREHENSIVE TRADE AND DEVELOPMENT POLICY

FOR THE COUNTRIES OF AFRICA:

Executive Summary

The primary goal of the Administration's trade and development policy for the countries of Africa is to support sustainable economic development in the region and to quicken the pace of that development, which would boost U.S. trade and investment in Africa. In response to the economic and democratic reforms implemented by many Sub-Saharan African nations in recent years, the Administration seeks to accelerate the pace of development by: 1) increasing trade flows between the United States and Sub-Saharan Africa; 2) promoting economic reform as well as the development of the private sector and infrastructure; 3) improving the investment climate; and 4) strengthening efforts toward democratic governance.

The United States strongly supports economic and institutional reform efforts currently underway in Africa. Economic growth across the continent is manifestly in the U.S. national interest. Increased economic development in Sub-Saharan Africa will benefit both Africans and Americans and will contribute to the national and economic security of the United States. Stronger economies in Sub-Saharan nations will contribute to social and political stability in Africa and create more export opportunities for U.S. goods and services and more jobs at home. They will also reduce costs to the U.S. of emergency humanitarian assistance as countries become better equipped to manage their own emergencies.

The Administration will continue to use a variety of tools to achieve its objectives including: bilateral technical and development assistance; increased government-to-government dialogue; multilateral development bank and IMF assistance; bilateral and multilateral debt reduction programs, World Trade Organization disciplines and participation; bilateral trade and investment agreements; and export promotion and trade facilitation programs.

A number of Sub-Saharan African countries have made significant progress in economic and democratization reforms in recent years. Over 30 countries, with assistance from the World Bank and the International Monetary Fund, have instituted economic reform programs that entail liberalizing exchange rates and prices, privatizing state-owned enterprises, instituting tighter disciplines over government expenditures, ending costly subsidies, and reducing barriers to trade and investment. Since 1990, more than 25 Sub-Saharan countries have held elections generally recognized as free and fair. Stable democracies create a climate in which business can thrive while economic development increases the chances that democratization will succeed. The willingness of a number of African countries to enter into regional economic integration agreements will also contribute to stronger economies.

In spite of Africa's improving economic performance, further structural reforms are necessary if the continent is not only to achieve sustainable growth, but also to reduce poverty. Necessary economic reforms include strengthening public finances by improving revenue collection and reducing expenses, especially with regard to state-owned enterprises; liberalizing prices; freeing the markets for foreign exchange and credit; and reducing trade barriers. Reforms in the trade area have particular importance for overall growth: recent research suggests that roughly 40 percent of Africa's slow growth in the 1970-1989 period was due to the fact that African markets have significant barriers to trade. A major goal of the Administration's trade and development policies toward Sub-Saharan Africa, therefore, must be to support African efforts to reduce tariffs and trade-related barriers so that the region may realize the full benefits of expanded trade and gain a resulting boost in growth.

Other reforms are also needed to improve Africa's "market infrastructure," e.g., modernizing commercial laws that govern domestic business and investment, strengthening financial institutions that provide the backing for entrepreneurs' ideas, and renovating the physical infrastructure that expedites domestic and international trade. Liberalization of investment is also critical for improving economic conditions in Africa. Foreign direct investment can transfer valuable technology to Africa, improve competition and galvanize domestic investment, while also benefiting foreign investors.

This is the second annual report submitted pursuant to the Uruguay Round Agreements Act (the "Second Africa Trade Report") setting forth the Administration's comprehensive trade and development policy for Sub-Saharan Africa. ...

In preparing the First Africa Trade Report, the Administration sought to identify the many U.S. programs related to Sub-Saharan Africa and set forth a policy framework structured around five basic objectives: trade liberalization and promotion, investment liberalization and promotion, development of the private sector, infrastructure enhancement, and economic reform. These five objectives remain the framework for the Administration's trade and development policy for Sub-Saharan Africa and the issues and initiatives discussed in the current report are organized around them. Highlights of the Second Africa Trade Report, including a brief discussion of the issues and progress on the initiatives discussed in the First Africa Trade Report, are set forth below. ...

I. Economic Reform

• Economic growth in Africa requires continuing macroeconomic stabilization and structural reform. The success of recent reforms is apparent in the region's accelerating GDP growth, which reached an average of 4 percent in 1995 compared to 1.4 percent in 1991- 94. This average, however, conceals wide variations in country performance, with four countries growing by over 10 percent and others contracting or growing by less than the population growth rate. Nevertheless, contrast with the 1980s and early 1990s, the poor performers now seem more the exception than the rule.
• Continuing public sector deficits and low private savings rates will keep total savings and investment at levels too low to sustain adequate growth in most Sub-Saharan countries. The World Bank estimates that gross domestic savings were only 6 percent of GDP in 1994-96, twice as high as in the prior three years but well below the median investment-to-GDP ratio of 15-16 percent. Even the latter modest level of investment can be sustained only by grants and concessional loans from official donors and debt relief, since Africa's share of global private investment is small. Donors will be increasingly selective in the countries and projects they support, while African nations should continue to do more to attract foreign investment.
• In September 1996, 23 Sub-Saharan countries had reform programs in effect with the IMF, while 31 participated in the World Bank-led Special Program of Assistance (SPA) for Africa. Reforms typically include realignment of exchange rates, fiscal consolidation, trade liberalization, privatization, financial sector reform, and in a few cases, regional economic integration. There also have been improvements in transparency and accountability. While fiscal performance is better, management of public finance generally remains weak and excessive reliance on trade tariffs for revenue hampers efforts to liberalize trade.
• The region's enormous parastatal enterprise (PE) sector still drains public resources and constrains private investment. The PEs' poor management, weak finances, and technological limitations mean that their net developmental effect usually is negative. While privatization has gained speed, it must be further accelerated and participation widened if the rate and quality of investment and growth are to improve. Privatization of utilities offers especially good opportunities to upgrade essential services while avoiding new debt.

II. Trade Liberalization and Promotion

• More active participation in regional and global trade organizations will help Sub-Saharan African countries take advantage of the benefits of trade liberalization. Protectionist trade policies in Africa were analyzed in a recent World Bank study that concluded protectionism has been costing the region as much as $11 billion per year -- equivalent to the total amount of external aid to the region in 1991.
• The United States has a growing strategic and commercial stake in expansion of Sub-Saharan African trade flows as the region already exports products worth $12 billion to the United States and is a growing market for U.S. goods. U.S. merchandise exports to the region jumped nearly 23 percent in 1995, to $5.4 billion.
• More than 30 Sub-Saharan countries have become members of the WTO and an increasing number of Sub-Saharan nations have taken steps toward regional integration. However, few Sub-Saharan nations were active participants in the Uruguay Round negotiations. In fact, there was virtually no lowering of the region's average tariffs in this, the world's most ambitious trade liberalizing agreement, despite initiatives undertaken by the WTO to make participation less burdensome for developing countries.
• The United States has encouraged the WTO to re-focus its technical assistance programs for promoting the understanding and implementation of WTO obligations to give special attention to the needs of the least-developed developing countries and to explore avenues for diversification of African exports.
• The Administration has been successful in obtaining legislation renewing the Generalized System of Preferences (GSP) that provides duty-free entry for half of the 9,000 products listed in the U.S. Tariff Schedule and contains special benefits for least developed beneficiary countries (LDBC). Another special benefit for the LDBCs is the possible addition of up to 1,895 tariff line items to the list of articles with preferential duty-free access. Most Sub-Saharan countries of Africa could benefit from this expansion of GSP benefits, particularly if Congress renews the program on a multi-year basis after it expires May 31, 1997.
• The historic Commercial Development Mission to Africa led by the late Secretary of Commerce Ron Brown in February 1996 visited five countries: Cote d'Ivoire, Ghana, Kenya, Uganda, and Botswana. Secretary Brown held discussions with government leaders and private representatives from nearly 40 African countries and more than 150 U.S. firms, resulting in contracts and agreements for American companies totaling nearly $500 million, with potential for future sales that eventually could total more than $3 billion in U.S. exports.

III. Investment Liberalization

• If obstacles that hinder investment are removed, benefits will accrue to both U.S. investors and the African nations. U.S. investments in Africa will increase if U.S. investors are assured of being treated as fairly and favorably as domestic and other foreign competitors and if they are confident the host country has a stable legal system.
• Most Sub-Saharan African countries actively seek foreign investment and many have liberalized their investment policies in order to attract foreign investors. Nonetheless, many Sub-Saharan countries still maintain restrictive investment policies, inefficient public enterprises, and/or legal systems that effectively discourage private investment, both domestic and foreign.
• The Administration is actively promoting U.S. investment in Africa. OPIC authorized a $120 million private investment fund, the New Africa Opportunities Fund, that will invest in projects in the countries of Southern Africa. In addition, during the last year, Eximbank approved over $23 million in transactions for the gold mining sector in Ghana and an additional $316 million for the hydrocarbon sector in Ghana. Eximbank also financed a major petroleum project in Angola. Also, TDA has funded 24 technical support activities and reverse trade missions as well as a major Africa transportation conference to support infrastructure development in 30 countries in Sub-Saharan Africa.

IV. Private Sector Development

• Development of Africa's private sector is critical due to its central role in the development of national economies. U.S. assistance to the private sector includes: (1) developing the human resource base for both the work force and managers; (2) expanding access to capital, both working and investment capital; and (3) building institutions to support the private sector.
• USAID is expanding its financial markets programs in certain African countries. Micro-enterprise lending is a particularly strong component of USAID's financial sector activities, and funding has been provided to such programs in Kenya, South Africa, Guinea, Mali, Zimbabwe, Senegal and Uganda. Its $100 million Southern Africa Enterprise Development Fund and smaller national funds in South Africa and Zimbabwe target that region.
• Under the auspices of the Agriculture Committee of the U.S.-South Africa Binational Commission, over 20 bilateral agricultural projects are underway in the areas of market access, technology development, institutional and human resources development, and sustainability issues, including soil conservation and rural development. V. Infrastructure Enhancement
• Improving infrastructure is critical to expanding intra-regional and international trade. There is a pressing need for development of transportation, water and energy resources, and telecommunications in Sub-Saharan Africa. At the same time, to ensure that such development is sustainable, the creation or further development of an adequate environmental infrastructure is required.
• Governments in Sub-Saharan Africa continue to dominate the provision of infrastructure in telecommunications, power, transport, and other sectors. All too often the result of this dominance has been under-investment, poor maintenance of finished projects, and lack of responsiveness to business and household end-users. For instance, the continent's average telephone density of about 0.4 lines per 100 inhabitants is the lowest in the world.
• One of the most promising short- and medium-term sectors for private investment in Africa is telecommunications. Technological changes such as satellite and microwave systems erode the old network-based monopoly in telecommunications and make competition possible. Similarly, in power generation and distribution, technological advances and improvements in regulatory frameworks are making power-generation more attractive to domestic and foreign private investors.
• Some efforts to coordinate regional infrastructure investments are already occurring in Sub-Saharan Africa. For example, the Commission of East African Cooperation, founded by Kenya, Tanzania, and Uganda in March 1996, has an ambitious plan to coordinate electrical power projects.
• In May, the Administration promoted the principles of the Global Information Infrastructure (GII) at a major conference in South Africa, and formally announced the five-year "Leland Initiative" to improve access of 20 African countries to the Internet.
• Eximbank issued $1.3 billion in letters of interest in Africa last year and has used escrow accounts to limit risk for infrastructure projects in less credit-worthy markets. The Department of Energy is providing policy and technical advice that facilitates private investment in water and power generation.

Working Together in the Administration

In the First Africa Trade Report, the Administration detailed the wide array of activities that federal agencies were undertaking to promote trade and development in Sub-Saharan Africa. This Second Africa Trade Report provides new information on the progress made during the last year in implementing these programs and on new initiatives that agencies are undertaking to achieve this goal. In addition, the first and second annual reports prepared by the U.S. International Trade Commission, both entitled U.S.-Africa Trade Flows and Effects of the Uruguay Round Agreement and U.S. Trade and Development Policy, contain valuable information on U.S.-African trade and investment flows, and detailed information on the trade and development activities in Africa of the federal agencies.

Working Together with Congress on Legislation

Some policy makers in the United States and other developed countries have assumed in the past that in order to promote economic development in Sub-Saharan Africa, foreign assistance and unconditional access to industrialized markets must precede the implementation of internal economic and structural adjustment programs by the Sub-Saharan nations. In light of the recent experience of a number of developing countries in which successful market-opening reforms as well as trade and investment have significantly contributed to development, the Administration recognizes that a more balanced approach to promoting development in Sub-Saharan Africa is required. Budgetary constraints also provide a further impetus to such an approach.

The Administration seeks to work closely with Members of Congress in the coming months on an approach that is aimed at assisting African development through trade, investment and access to international financial and technical assistance. Sub-Saharan African countries should expect that the benefits of increased trade, investment, and closer economic relations with the United States will be linked with their own efforts to open their markets to competition and investment, the protection of intellectual property rights, and the implementation of the economic reforms that are necessary for development.

The Administration seeks to promote trade, investment and increased development in Africa by, among other things, encouraging U.S. firms to play a more active role in the region. The Administration shares these objectives with the sponsors of the proposed "Africa Growth and Opportunity: The End of Dependency Act of 1996" (HR 4198) and hopes to work closely with Congress in the coming months to develop legislation that places due priority on building and enhancing the partnership between the U.S. and Sub-Saharan African private sectors in order to spur economic growth and development in Africa and to expand U.S. trade with and investment in the region.