U.S. DEPARTMENT OF STATE
ASSISTANT SECRETARY TESTIMONY
SENATE COMMITTEE ON FOREIGN RELATIONS
SUBCOMMITTEE ON AFRICA
ENCOURAGING TRADE AND INVESTMENT:
AN INTEGRAL PART OF U.S. POLICY TOWARDS AFRICA
Senate Committee on Foreign Relations
Subcommittee on Africa
February 16, 1995
Madam Chairman and members of the Committee,
It is fitting that the first formal hearing on Africa by the 104th Congress should be on trade and investment. Those who see only news headlines that portray Africa as a continent of famine and crisis may be surprised by this focus. But those who have lived and worked in Sub- Saharan Africa or who have closely watched recent developments on the continent will recognize that trade and investment are indeed becoming a fundamental aspect of U.S.-Africa relations. I welcome the opportunity to focus on this theme as we initiate formally our dialogue on African issues.
Africa is Undergoing a Transformation
A major transformation is underway in Africa, comparable to what Latin America experienced over the past decade. The clearest indicators of this transformation are the growth and expansion of democratic governments and institutions, paralleled by significant economic reform and liberalization. Nearly two-thirds of African countries are now at some stage of democratic transition, compared to only four in 1989. Many African nations have taken difficult and courageous steps to keep budget deficits down, maintain realistic exchange rates, and increase competition through domestic deregulation, trade reform, and privatization of public enterprises. The aim of these reforms has been to create an enabling environment in which the private sector can act as the engine of development.
U.S. leadership and support are critical to that transformation. Our diplomatic efforts and bilateral aid programs have given significant impetus to democracy-building and economic development. Our contributions--leveraged with those of other donors--to the programs of the World Bank and International Monetary Fund in Africa have reinforced economic policy reforms and infrastructure development.
The transformation of Sub-Saharan Africa has significant implications for U.S. interests. First, the progress realized to date has stimulated growing interest and opportunities for U.S. business. Second, the emergence of more stable, more democratic governments has given us responsible partners with whom we can address the full range of regional and international issues: settling or preventing conflicts; combatting crime, narcotics, terrorism, and weapons proliferation; protecting and managing the global environment; and expanding the global economy.
Although the results thus far have been encouraging, we must recognize that Africa's transformation is ongoing, incomplete, and still tenuous in many places. It would be extremely shortsighted not to persist in the effort to consolidate and protect the investment already made. The problems that would arise if the transformation falters--failed states, political instability, human tragedy--would pose direct threats to U.S. interests and security.
U.S. Involvement in Africa is Paying Off
Nowhere are the benefits of active U.S. involvement and investment more evident than in Southern Africa. Our efforts at conflict resolution and democratic institution building have paid--and will continue to pay-- significant dividends.
With the establishment of a non-racial democracy in South Africa, U.S. business can contribute to the country's economic development and help erase the economic disparities that are the legacy of apartheid. South Africa already accounts for $2.2 billion in trade--nearly half of U.S. exports to Sub-Saharan Africa. Ford and Pepsi recently made multi- million-dollar investments, and over 300 U.S. firms have returned since mid-1991. AT&T, Citibank, IBM, Kodak, Sara Lee and Proctor & Gamble are becoming household names. South Africa is the cornerstone of a much larger market, one that encompassed the 11 nations of Southern Africa and their 130 million inhabitants, and extraordinary minerals, wildlife, and resources. The potential of the Southern African sub-region is what has led the Commerce Department to declare it one of the world's ten major emerging markets for U.S. exports.
In West Africa, Ghana provides another example of how U.S. involvement and support--including USAID's Trade and Investment Program--have yielded impressive results. Our leadership in promoting democratic institutions and economic reforms have turned Ghana into one of our most promising African export markets. Between 1992 and 1993, U.S. exports to Ghana expanded by 73 percent. Figures for 1994 trail that performance, but U.S. businesses have found profitable opportunities, and their products and investments are reinforcing Ghana's development goals.
Events in Sierra Leone offer a cautionary lesson. The recent eruption of civil unrest in this coastal nation illustrates the fragility of some regimes and underscores the need for us to maintain knowledgeable, experienced diplomats in the field who can work to prevent developing conflicts where possible, or help work out solutions. In the particular case of Sierra Leone, the economic stakes are high as well. An attack in January shut down Sierra Rutile, a 50-percent U.S.-owned mine that is the world's largest single producer of rutile, a strategic titanium ore used in aircraft manufacture and paints.
Support for Africa is an Investment in our Future
The African market, with over one-half billion potential consumers, is already significant. There is great potential in sectors such as telecommunications, finance, agriculture, and natural resources, although obstacles to trade and investment remain in a number of countries. The U.S. direct investment position approaches $3.5 billion. In 1993, U.S. firms exported nearly $4.8 billion in goods and services to Sub-Saharan Africa. This is 20 percent greater than our exports to the Commonwealth of Independent States of the former Soviet Union.
These exports represent tangible benefits to American families. By some estimates, every extra $1 billion in exports adds 19,000 new jobs in the United States. Doubling our exports to Africa could create an additional 90,000 jobs at home. And our exports to Africa will increase, provided that the political and economic transformation currently underway is sustained. Given the potential gains to the United States, our current development aid to Africa--about one-half of one-tenth of one percent of the federal budget--represents a minuscule investment with the possibility of a tremendous future pay-off.
In a recent speech, AID Administrator Brian Atwood offered a quick, back-of-the-envelope calculation to illustrate this point. Using simple, but not implausible, assumptions about African demand for foreign goods, U.S. market share, and U.S. population growth, he came to the following conclusion: The average $3 per year that each American family contributes to African development assistance, if sustained over 30 years, could generate an annual $600 in exports per U.S. family by the year 2025. As Brian points out, these are not trivial amounts; they represent millions of jobs for our children, and financial health for our nation. It is very much in our own interest to remain engaged in Africa and to support the real, but fragile, economic and political transformation that has begun.
Other Policy Initiatives Will Spur Trade with Africa
This Administration has also vigorously pursued global trade, investment, and debt policy initiatives that will boost U.S.-Africa business and commercial ties and help integrate Africa into the world economy:
-- Trade. The successful conclusion of the Uruguay Round negotiations and the creation of the World Trade Organization will enhance trade opportunities with African countries. The U.S. Trade Representative is chairing a working group to formulate and implement a comprehensive trade and development policy to ensure that these countries are able to take full advantage of the opportunities to compete successfully in growing regional and global markets as trade barriers come down.
-- Investment. On multiple fronts we are pursuing our goals of open markets, non-discriminatory treatment, and basic fairness for U.S. investors doing business abroad--be it in Europe, East Asia, or Africa. Where appropriate, we negotiate Bilateral Investment Treaties that protect investors from expropriations and assure the right to transfer funds and access to fair dispute resolution mechanisms.
-- Debt Relief. The United States and other creditor nations have established a mechanism in the Paris Club to offer debt reduction on a selective, case-by-case basis to countries that are undertaking economic reforms, but that are still saddled with heavy debt burdens that inhibit private investment and growth. Some two dozen low-income African countries have benefitted from debt reschedulings or reductions over the past several years.
We Provide Direct Support for U.S. business in Africa
I have outlined how our policies and programs that promote democracy, peace, and sustainable development in Africa reinforce U.S. economic interests and provide significant indirect benefits and opportunities for the U.S. private sector. But we are also actively involved in providing direct support services and assistance to the business community. Deputy Assistant Secretary Walker is providing a detailed overview. Let me just provide a few recent examples of the role our embassies are playing:
-- In Ethiopia, our embassy helped Louisiana-based Schaffer and Associates in a hard-fought and successful bid for an $84 million sugar project, with prospects for an additional $50 million in sales of related U.S. goods and services.
-- In Botswana, the U.S. Ambassador's intervention resulted in removal of discriminatory tender requirements that hampered an Owens-Corning bid on a $180 million contract to supply pipes for a major water pipeline.
-- In Kenya, Zimbabwe, Malawi and Mauritius, our embassies actively supported the Kellogg Company's effort to reduce import duties on breakfast cereal.
o In Madagascar, our Ambassador's efforts to ensure a level playing field for all bidders resulted in the signing of a lease/purchase agreement for a Boeing 737 aircraft.
o In Cameroon and Chad, our embassies supported negotiations leading to a recent $3-4 billion agreement relating to the building of a proposed oil pipeline from land-locked Chad, through Cameroon, to an offshore terminal. The consortium which is to build the pipeline is led by an affiliate of Exxon.
-- In Zimbabwe, the tender offer for the country's first cellular phone system was cancelled after our Ambassador protested that the specifications were biased in favor of European suppliers. Several U.S. firms were able to submit bids after the tender was rewritten.
-- In Senegal, the U.S. envoy successfully persuaded the authorities to replace outdated health legislation that prevented Colgate from making or selling fluoride toothpaste.
We are Creating New Government-Business Partnerships
Providing information on economic trends, local business practices, and financing options; ensuring a level playing field; removing discriminatory regulations--this is the kind of work that our embassies in Africa and our personnel in Washington do every day to help U.S. businesses, large and small, to find opportunities in Africa. In an increasingly tight budget environment, we need to find ways to be more efficient and more effective in our business facilitation efforts.
We have ongoing contacts with a variety of Africa-related business groups, such as the U.S.-Angola Chamber of Commerce, the U.S.-South Africa Business Council, and the African Business Roundtable. We also have frequent exchanges with the Corporate Council on Africa. These are the kinds of partnerships between business and government that we value and wish to strengthen.
A few months ago, the Corporate Council on Africa, the Department of State, and other federal agencies held a series of roundtable discussions on improving commercial opportunities in Africa. I participated in some of those discussions, and found many of the recommendations that ensued to be useful and timely. Some of the issues the Corporate Council raised--the need to remain engaged throughout Africa, the need to support regional economic integration, the need to secure broader international adherence to the principles of the Foreign Corrupt Practices Act, the need to re-invent the role of our embassy economic officers--are issues we are already in the process of addressing.
Other Corporate Council recommendations touched on complex issues that require careful analysis. The availability of government-supported export financing, for example, is a central concern; but it is a difficult issue, given that current practice is rooted in the provisions of the Credit Reform Act and the charter legislation for Eximbank and the Overseas Private Investment Corporation. I have asked Regina C. Brown, our Deputy Assistant Secretary for Economic and Business Affairs, to chair an informal interagency review of the Council's recommendations, with the aim of identifying concrete, feasible steps the Administration can take to address the concerns that have been raised.
The U.S. Needs to Remain Engaged
To recapitulate, Madam Chairman, Sub-Saharan Africa is undergoing a sweeping political and economic transformation. Democratic institutions are being developed or strengthened in numerous countries, and fledgling governments are taking important steps to liberalize their economies and create an enabling environment for private sector-led growth.
U.S. leadership and support have been critical to this transformation. Already, our active engagement in this process is starting to show results. Our assistance programs fostering democratization and economic reform have created opportunities for U.S. business. U.S. exporters and investors, in turn, have reinforced development goals in African nations. All Americans potentially stand to gain from the expansion of African markets.
We must recognize, however, that Africa's new governments are fragile and their transformation remains incomplete. We need to continue supporting their efforts. Our initiatives to strengthen democracy, resolve conflicts, and foster sustainable development in Africa represent a low-cost investment. If we as a nation remain engaged, American businesses--and indeed all of us--can expect to reap significant returns.
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