Getting It Right: U.S. Trade and Investment in Sub-Saharan Africa
March 24, 2021
Upon the conclusion of his eight-country trip to Africa in 1957, Vice President Richard Nixon recommended to President Dwight Eisenhower that “the United States Government through its agencies should, as appropriate, draw the attention of private American capital for investment to opportunities in those areas where the conditions for such investment are propitious.” In the following 60 years, every U.S. administration—Republican and Democrat—has echoed this sentiment.
There have been programs to provide guaranties, some equity, local currency loans, and investment advice to U.S. companies, as well as landmark legislation, including the African Growth and Opportunity Act (AGOA) first passed in 2000. The Obama administration added to the suite of U.S. initiatives, unveiling the Doing Business in Africa Campaign, Power Africa, and Trade Africa, while the Trump Administration transformed the Overseas Private Investment Corporation into the Development Finance Corporation, began negotiations for a free trade agreement with Kenya, and launched Prosper Africa—a U.S. government initiative to increase trade and investment between the United States and the continent.
And yet U.S. trade and investment with sub-Saharan Africa remains unimpressively low. The United States did approximately $32.6 billion worth of trade in goods with the region in 2020, down from $36.8 billion in 2019. This means that in the past two years, U.S. trade with sub-Saharan Africa has represented less than 1 percent of all U.S. trade in goods . If there has been a six-decade consensus on U.S. opportunities in sub-Saharan Africa and multiple initiatives and programs to increase trade and investment, why have there been such disappointing results?
Since September 2020, the Africa Program at the Center for Strategic and International Studies has partnered with Prosper Africa to unpack some of the real and perceived barriers that U.S. businesses face in sub-Saharan Africa. In a series of private conversations with U.S. and African businesses involved in healthcare in the greater Miami area, agriculture in the Quad Cities in Iowa and Illinois, and the tech sector in Silicon Valley, we discussed some of the enticing opportunities and enduring challenges to U.S. trade and investment in the region and gained new insights into the key weaknesses leading to low two-way trade and investment.
President Biden’s recent Interim National Security Strategic Guidance makes clear it is a U.S. priority to “partner with dynamic and fast-growing African economies” as well as to “ensure that the growth we promote through [its] international commercial, trade, and investment policies is durable and equitable.” If the U.S. government is going to make good on its goals, it will need to expand Prosper Africa’s focus on deals and transactions to include more creative outreach to the U.S. private sector as well as deepened partnerships with African governments to improve enabling environments abroad. The Biden administration should seize the opportunity to align Prosper Africa with its trade and investment priorities and set the stage for more durable success.
Behind the Numbers
There are several challenges contributing to stagnant U.S.-Africa trade and investment. The official pitch to U.S. companies about why they should engage in Africa consistently fails to undercut long-standing biases and preconceived notions about the region. This is compounded by a lack of consistent and accessible U.S. government support to businesses as well as real concerns around navigating enabling environments in the region. While Prosper Africa has worked to address some of these issues—including through facilitating transactions and shaping future opportunities—there is more to be done.
At the heart of the anemic trade and investment between the United States and sub-Saharan Africa is skepticism about market opportunities, made worse by U.S. media and ingrained stereotypes about corruption and investment challenges. According to a University of Southern California study in 2019, references to Africa in the U.S. media are more likely to be negative than positive in both Twitter conversations and in entertainment programming.
The official pitch to U.S. companies, however, has failed to counter these narratives and its exuberance to overcorrect has brought few companies around. It may even deter the discerning investor. The tired statistic that “7 out of the top 10 fastest growing economies are in Africa” has fallen on deaf ears for years, yet it is reflexively repeated by government bodies and international finance institutions. Even terms like “final frontier” when describing Africa as a destination for trade and investment are needlessly bullish and broad and overlook real concerns about challenges and trade-offs in the region.
Many U.S. businesses we spoke with had legitimate questions about why their company—or sector—should do business in sub-Saharan Africa. And that is a critical obstacle: the lack of sector-specific outreach and engagement has left some firms in leading U.S. sectors (like healthcare, agribusiness, and technology) underwhelmed and uninterested in what the continent’s economies have to offer. Several companies we engaged with remained unsold on the opportunities and planned to stay away unless they had more exposure and received unvarnished market intelligence.
Lack of Support at Home
Despite decades of support programs, the U.S. government has struggled to deliver its support to domestic firms. For too long, U.S. companies have had to seek out departments and agencies for support—one by one—resulting in a frustrating process that deters future interest. Not only has this scavenger hunt for services been challenging, but availability and accessibility has waxed and waned throughout various administrations.
U.S. companies require predictability, enabling them to leverage consistent market intelligence, technical assistance, financing, political risk insurance, and in-country guidance to navigate country-specific bureaucratic hurdles. Consequently, U.S. companies have opted for foreign and domestic markets that are intuitively easier to navigate or where they can obtain greater support.
Some companies we spoke with mentioned they had “no idea” where to look first in accessing market intelligence on African economies. Was it the Washington-based U.S. Trade and Development Agency (USTDA), state-level U.S. Export Assistance Centers (USEACs), or the U.S. embassies in relevant African countries? Prosper Africa has been a step in the right direction, serving as a clearinghouse for services and resources from across the U.S. government, but Washington has more work to do to effectively publicize its support mechanisms to U.S. companies—both those convinced, and unconvinced, of engaging with Africa.
Poor Enabling Environments Abroad
Private sector stakeholders, already skittish about investment and underwhelmed by U.S. support, tend to conclude that stomaching the region’s weak enabling environments and opaque policy and regulations is a bridge too far. From a lack of access to foreign currency exchange in some countries to undercapitalization and the fragmentation of local supply chains in others, many U.S. businesses fret that they will struggle to trade or operate with the same ease they would in a country with more transparent, market-friendly policies. The companies we spoke with pointed to corruption (particularly the demand for under-the-table costs to expedite registration processes); the existence (or lack thereof) and strength of intellectual property protection laws; difficulty around navigating foreign payment systems, zoning rules, and permitting processes; the availability of trustworthy local auditing firms; strict government reporting requirements; and even political instability as principal hurdles to greater investment.
- A representative from a medical infusion pump company in Miami, for example, said the firm’s biggest concern was progress by regional health ministries in expediting sanitary registrations, including through cutting down on documentation requirements and lead times on paper processing. Operating in a regulatory environment with long wait times for sanitary registrations, she explained, was a “no-go.”
- Another representative from a tractor part company in the Quad Cities noted that the firm’s biggest obstacle to date had been identifying countries with clad-tight intellectual property laws. Attempting to expand sales into Africa was moving slowly because they could not guarantee their products would be protected under effective local trademarks or patents.
The Tech Investment Challenge
In addition to U.S. challenges around increasing trade and investment in traditional sectors in sub-Saharan Africa, angel investors and venture capitalist (VC) firms face a unique set of obstacles when it comes to investing in the region. Why should New York- or Silicon Valley-based investors invest in African tech startups or firms as opposed to those in Berlin or Taipei ?
In general, U.S. investors are uninterested in the comparatively small “ticket size” of deals available on the continent and believe they have more attractive investment opportunities elsewhere that offer higher potential returns with less risk. This is a serious concern: their expectations for high growth may be mismatched with realities on the ground in African markets. In a January 2021 Quartz Africa article, Yinka Adegoke refers to investors’ expectation that startups “scale up” as they begin to grow—in which a unit cost to produce one item decreases as more and more of those items are produced. He warns that “scaling up” doesn’t always happen in African markets, writing that “in fact there could be diseconomies of scale due to poor infrastructure with everything from weak internet connectivity to poor road networks and low financial inclusion.”
But these kinds of challenges—as Adegoke says—are also spurring sweeping innovation in fintech, medtech, and other areas, which are attracting foreign businesses and investors. International tech investments grew by 74 percent across the continent between 2018 and 2019. To keep this momentum and survive in rapidly evolving African markets, it is critical that investors and VC firms adopt more flexible investment models, including through instruments such as permanent capital vehicles, which offer unlimited amounts of time to recoup returns. Instead of pressing for a Silicon Valley model, U.S. investors may have to adjust to the methods and contexts in which African startups operate. Regional governments also should dismantle some of barriers to investment in the region, including by updating legislation on relevant issues such as data regulation.
Quit Talking and Begin Doing
Increasing two-way trade and investment between the United States and Africa is a U.S. national security priority. Not only because it will grow the U.S. and African economies, improve the quality of life of countless people, and spur environmentally friendly business standards in African countries, but it will undercut foreign competitors who seek to use corruption and non-transparent dealings to establish political, security, and economic footholds on the continent. The U.S. government and businesses alike should be encouraged by recent developments, including the acquisition of Nigeria’s Paystack by Silicon Valley’s Stripe, the successful Series B funding round for African fintech company Chipper Cash with investments from Bezos Expeditions, and investments from Visa and Goldman Sachs in Nigeria- and South Africa-based fintech firms.
Bright Spots: How I Built This in Africa
Some of the U.S. firms and investors we spoke with had successfully expanded into sub-Saharan African countries or had significant trade and investment in the region. Not only had they effectively navigated countries’ permitting processes, intellectual property protection regulation, and zoning rules, but they had been clear-eyed—and hopeful—about their prospects for success and had been able to piece together U.S. government support across different agencies and departments.
One prominent dairy firm shared that they rely on publicly available market intelligence from the U.S. Agency for International Development and USTDA in addition to purchased consumer usage behavior surveys. The representative stressed that data does not substitute on-the-ground knowledge, and that it is critical for businesses to make in-country connections to better grasp the complexities and vast regulatory differences across the region. Building relationships from the ground up was critical to the success of their animal feed operations in Kenya, for example.
An investment firm told us that they had used U.S. government support to advance a major healthcare financing facility in Senegal, and another company said they had received U.S. government assistance to secure investment in new technology that will help pharmacies in Nigeria and Kenya stock high-quality medicine.
These testimonials exemplify how to succeed in Africa, and how a combination of perseverance, situational awareness, relationship building, and U.S. government support can make the critical difference.
It is time to harness this momentum and prioritize sector-specific engagement and municipal outreach as well as storytelling—including by putting thriving U.S. businesses front and center. It is also imperative to get smart about offering technical assistance to African governments undergoing market reforms. As the Biden administration evaluates its overall trade and commercial policies, as well as next steps for Prosper Africa, it should implement the following five reforms:
- Prioritizing sectoral focus. The U.S. government should prioritize outreach to private companies in sectors that align with U.S. comparative advantage or advance national security goals, including agribusiness, energy, entertainment, finance, healthcare, services, and technology. Prosper Africa, as a whole-of-government initiative, is well positioned to elevate U.S. comparative advantage and work with both U.S. and African officials to enact policies that effectively support ties between U.S. and African businesses. In addition, the U.S. government should incorporate more sector-specific insights in its Country Commercial Guides—available on the State Department, Chamber of Commerce, and embassy websites—and even explore options for search engine optimization and paid advertising to bring market intel to a wider pool of U.S. businesses.
- Strengthening storytelling. The U.S. government should revamp its pitch on doing business in Africa, increasing engagement with small to medium-sized U.S. companies at the state and municipal level. This could include hosting focus groups to see which statistics, stories, and images resonate the most with certain companies, and then disseminating local messaging campaigns by partnering with municipal-level USEACs and even deal teams at U.S. embassies abroad. The U.S. government should also create opportunities for business-to-business mentorship, and U.S. mayors should continue to experiment with bringing African business delegations to their cities to explore sector-specific opportunities and challenges. Washington should also work with municipal governments to increase engagement with their diasporas and think creatively on how to translate those connections into increased trade and investment with the region.
- Admit trade-offs exist. The U.S. government often promotes trade and investment opportunities in sub-Saharan Africa in a vacuum. It fails to acknowledge that U.S. firms have options closer to home and in other emerging markets in the Middle East and Asia. U.S. officials rarely concede that there are opportunity costs to investing in Africa. Put plainly, every dollar invested in the region is one less dollar available for an investment elsewhere. The U.S. government should better appreciate that U.S. companies must carefully evaluate their options, comparing the merits of African deals with those of U.S. and non-African transactions. To effectively promote African opportunities, U.S. officials, including those at Prosper Africa, should present the relative strengths, weaknesses, and trade-offs implicit in each prospective deal .
- Strengthen enabling environments. The U.S. government should partner with African governments to improve their enabling environments and dismantle barriers to investment. This could include developing a U.S. government version of the World Bank’s Doing Business rankings —which were suspended due to data irregularities including deliberately altered statistics—or sector-specific rankings like Power Africa’s Enabling Environment Tracker , which pulls together publicly available data on policy and regulatory trends across Africa’s energy sector. The U.S. government might also provide technical assistance to African governments looking to adopt better production standards or to institute market-friendly reforms and those supporting domestic watchdogs such a media and civil society to hold their policymakers accountable. In addition, the U.S. government should promote and fund initiatives such as the African Development Bank’s Legal Support Facility to enable African government to more effectively evaluate foreign bids.
- Team up with like-minded partners. The United States should partner more closely with foreign firms to invest in sub-Saharan Africa, leveraging each side’s unique talents and expertise to advance U.S. trade and investment priorities. This is already happening with Power Africa, a U.S. interagency initiative to expand electricity access and improve electricity supply. Power Africa has operational partnerships with bilateral and multilateral entities, including the European Union, the African Union, Japan, and South Korea. This approach could be especially fruitful in the infrastructure sector where U.S. companies tend to be less competitive than Emirati, French, or Turkish ones but could provide a range of support services to complement engineering, procurement, and construction firms active in this space. The U.S. government should also continue to support the U.S. International Development Finance Corporation, which has adopted mechanisms to advance consortia with foreign governments and institutions on these issues.
This commentary was made possible with the generous support of Prosper Africa.
Judd Devermont is the director of the Africa Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Marielle Harris is a research associate with the CSIS Africa Program.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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