U.S. State Department Geographic Bureaus: Africa Bureau

U.S. DEPARTMENT OF STATE
95/03/08 TESTIMONY: G. MOOSE ON AFRICA TRADE/INVESTMENT
BUREAU FOR AFRICAN AFFAIRS

[AS PREPARED]

TESTIMONY OF GEORGE E. MOOSE
ASSISTANT SECRETARY OF STATE FOR AFRICAN AFFAIRS

THE ROLE OF TRADE AND INVESTMENT
IN U.S. POLICY TOWARDS AFRICA

House Committee on International Relations
Subcommittee on Africa
Subcommittee on International Economic Policy and Trade


March 8, 1995

Madam Chair and members of the Committee,

I welcome the opportunity to participate in this joint subcommittee hearing on prospects for trade and investment in Sub-Saharan Africa. I believe that this focus is appropriate and timely. Although the African continent still faces serious development challenges, there are already significant opportunities for U.S. business, and there is enormous potential for future trade and investment ties. If this promise is to be realized, however, we must remain engaged in Africa, providing support for sustainable development and economic and political reform through our diplomatic efforts, through USAID programs, through our contributions to international organizations, and through an appropriate program of debt relief.

I would like to begin the discussion today with an overview of current trends in Africa and their implications for U.S. political and economic interests. I will then describe some of the programs and activities the U.S. Government is pursuing--many of them in conjunction with other international donors--to promote African development, trade and investment. Assistant Administrator Hicks will be providing detailed testimony on the role of USAID in fostering African development.

Sub-Saharan Africa in Transition

Africa is undergoing a major transformation, 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 on three fronts are critical to that transformation.

-- First, our diplomatic efforts and bilateral aid programs have given significant impetus to democracy-building and economic development.

-- Second, our contributions--leveraged with those of other donors--to the programs of the World Bank, the International Monetary Fund (IMF), and the African Development Bank have reinforced economic policy reforms and infrastructure development. Of particular importance to Africa are the concessional loans for development and structural reform provided by the World Bank's International Development Association (IDA) and the balance of payments support and policy guidance provided by the Enhanced Structural Adjustment Facility (ESAF) of the IMF.

-- Third, our participation with other creditor nations of the Paris Club in providing debt relief on a case-by-case basis to the poorest, reforming countries helps achieve financial equilibrium and open the way for increased private investment, trade, and economic growth. Some two dozen low-income African countries have benefitted from debt reschedulings or reductions over the past several years.

Implications for U.S. Interests

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 threaten U.S. interests and security.

Benefits of U.S. Involvement

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 billion in trade--nearly half of U.S. exports to Sub-Saharan Africa. Ford and Pepsi recently made multimillion-dollar investments, and over 300 U.S. firms have returned since mid-1991. AT&T, Citibank, IBM, Kodak, Sara Lee and Procter & 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 sub-region is what has led the Commerce Department to declare South Africa 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 U.S.-Australian mine (Nord Resources of Dayton, Ohio, has a 50-percent share) that is the world's largest single producer of rutile, a strategic titanium ore used in aircraft manufacture and paints.

An Investment in our Future

The African market, with over one-half billion 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, conservatively estimated, stands at $3.5 billion. In 1994, U.S. firms exported nearly $4.4 billion in goods to Sub-Saharan Africa. This is 22 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. Already, U.S. firms are earning over five times more in exports to Africa annually than the amount we are providing in assistance through the Development Fund for Africa.

Other Policy Initiatives to Boost Trade with Africa

This Administration has also vigorously pursued global trade and investment 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 (USTR) 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, national (i.e., non-discriminatory) treatment, and basic fairness for U.S. investors doing business abroad--be it in Europe, East Asia, or Africa. Where appropriate, USTR and State negotiate Bilateral Investment Treaties that protect investors from expropriations and assure the right to transfer funds and access to fair dispute resolution mechanisms.

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, working closely with the Department of Commerce, the Export-Import Bank of the United States, the Overseas Private Investment Corporation, the U.S. Trade and Development Agency, and other government departments, we are also actively involved in providing a range of direct support services and assistance to the business community. Let me just provide a few recent examples of the role our embassies are playing:

-- In Angola, our Economic/Commercial Officer facilitated a half-dozen major new investments or sales from U.S. Fortune 500 companies in two years. He turned around a local tax ruling that would have effectively barred a U.S. company from returning to Angola, and also assisted numerous smaller firms.

-- 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 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 Cote d'Ivoire, the U.S. Embassy worked closely with representatives of United Meridian International Corp. to keep the country's leadership apprised of Meridian's bid to develop natural gas and oil fields and construct pipelines. The Houston-based firm outbid a large French competitor and signed a multimillion-dollar contract with the Ivorian government last September.

-- 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 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.

-- In Mozambique, our Embassy briefed Global Spectrum, Inc., of Miami, Florida, extensively on opportunities for callback telephone services. Within six months, Global Spectrum established itself as the market leader in providing an economical alternative for long-distance service. Its international marketing manager wrote to thank our Ambassador last April, noting that, "as U.S. taxpayers, we certainly feel that we are getting more than our money's worth in Mozambique."

-- In South Africa, our consulates in Cape Town and Johannesburg made all business arrangements for a recent North Carolina trade delegation headed by Governor James Hunt. The consulates played matchmaker for a number of U.S. firms and potential South African partners. One deal has already been signed, and more are in the pipeline.

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. This week, Regina C. Brown, our Deputy Assistant Secretary for Economic and Business Affairs, is chairing the first session of 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 Need to Remain Engaged

To summarize, Madam Chair, 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 and contributed to the better integration of Africa into the world economy. 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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