Foreign direct investment is more effective than remittances and overseas development assistance at generating sizable economic growth and development. But Africa's strategy to draw investment needs work, says Bob Wekesa.
US Secretary of State Anthony Blinken's visit to Kenya, Nigeria and Senegal in November 2021 was a rare event for an administration's first year, cautiously signalling the US's aim to reconnect with Africa and to recover confidence in the former's commitment to democracy.
With various promising moves in the pipeline, such as the appointment of a programme head for the Prosper Africa initiative, there may be movement with the African development agenda, especially in terms of foreign direct investment (FDI).
This is crucial, because as Dennis Matanda, Chief Executive Officer of Morgenthau Stirling in Washington DC, argues, "the first thing Africa should do is recognise that foreign direct investment is more effective than remittances and overseas development assistance at generating sizable economic growth and development."
Because the US is still the biggest source of global investment (USD 6.15 trillion in 2020), African countries must change their strategy to attract foreign capital in the next critical Biden/Harris years.
The continent's current strategy to attract money is not working. In the last 20 years, the 55 African Union member states drew less than five percent of global FDI and only 0.8 percent (about USD 47 billion) of US direct investment abroad.
This is an anathema in a time when the US private equity and venture capital markets raised over USD 790 billion in 2021 alone.
Africa, home to 1.3-billion people, and with trade valued at around USD 4.3 trillion, can open its market up, cut trade cost and become the next global trade and investment frontier, argues Professor Gilbert Khadiagala, Director of the African Centre for the Study of the United States at Wits University.
There are several ways in which it can do this.
Firstly, the Africa Continental Free Trade Area (AfCFTA) is probably the continent's most important trade facilitation mechanism. Prioritising AfCFTA will see more investment in Africa, particularly from the United States.
Just as Biden was being inaugurated in early 2021, the first shipment under AfCFTA departed from Ghana. The ship bound for Guinea and South Africa symbolised a new era: the rapid implementation of a free trade agreement to create a more inclusive and prosperous future for Africa.
Secondly, Africa can also be crucial in pushing for a permanent African Growth and Opportunity Act (AGOA).
For the past 20 years, African countries have not played enough of a role in ensuring that African Growth and Opportunity Act (AGOA) serves their interests.
AGOA is not a treaty per se but is US law passed by Congress that makes provisions for duty free access to US markets for thousands of African exports, if these nations meet certain requirements, such as fair trade. It is therefore important for Africans in the second year of the Biden administration to prevent AGOA from expiring in 2025.
AGOA's imminent expiration means the continent must formulate a new and comprehensive trade and export policy, which should be at the top of the African agenda, especially since experience demonstrates bilateral and multilateral trade pacts usually take more than five years to negotiate.
AGOA, or even a post-AGOA strategy, could become the core for a comprehensive negotiating stance by African states. Crucially, it can be Africa's agenda for future dealings with the US, regardless of the party in power in that country.
The third area in which the continent must focus its energy is in changing negative perceptions that discourage investment. African countries must counter the narrative that there are few opportunities for US investors on the continent. If Africa wants to obtain seed funding and private equity money, we must ramp up efforts to challenge negative narratives around stability, risk, economic growth, and infrastructure.
No public affairs of lobby firm in Washington will change the erroneous narrative unless Africans do it themselves. Once this changes, African countries will see a significant number of doors opening to engage on trade, investment, aid, remittances and tourism.
Bob Wekesa is Deputy Director, The African Centre for the Study of the United States, Wits University. Views are the author's own.